Minimum Wage: 6 Ways To Prepare Your Business For The Rise Of Labor Costs
The campaign to increase the federal minimum wage has lost traction with a new administration setting up in Washington. Proposed legislation Senator Sanders' Pay Workers a Living Wage Act, which would increase the wage to $15 an hour, are sitting in committee where they most likely will stay for now. However, 30 states and the District of Columbia already have minimum wages higher than the federal rate with scheduled increases to come. The increases are incremental and come with fine print. New York's $15 an hour wage, introduced by Governor Cuomo with much fanfare last spring, won't be fully phased in until 2019 in New York City, while outside of the City in places such as Long Island and Westchester, the rate hits $12.50 an hour in 2020, with an indexed schedule of increases planned until $15 an hour is reached statewide.
In Los Angeles, the minimum wage will slowly climb until reaching the $15 an hour rate in 2020. Across the state of California, small businesses won't be required to pay the $15 rate until 2023. The gradual rise gives businesses time to plan, and planning is key to staying profitable as labor costs increase.
Consider your options
If you are working with a tight profit margin, absorbing the cost of minimum wage increases isn't feasible. You must either layoff or reduce employees' hours, find non-payroll areas to cut costs, or pass the costs onto your customers or clients.
Do more with less
If your strategy is to reduce the number of hours you are paying for labor, you need a lean, efficient workforce. View your current employees and new hires as investments. Onboarding and training costs will pay in return. How you manage your employees will determine how great that return will be. What do your employees need to be more productive? Review your company's policies and procedures. Are there redundancies in your organizational chart? Does your company culture encourage and reward productivity?
Automate and outsource where you can
If your business requires managing sales tax collection for several different states and counties, you may be able to reduce the bookkeeping expense of tracking multiple tax rates with a sales tax management program. Hours of human resource time spent checking potential hire references may be cut by using automated reference checking. Investigate outsourcing your webmaster tasks and social media marketing. You may find cost savings by tapping into the gig economy.
Cut non-payroll costs
Scour your financial reports, and look for savings you may have missed. How energy efficient are your office machines and appliances? Switching to a paperless office may trim some costs. Analyze your payment processing statements to see if you may be paying more than you should. Rethink how you use office and warehouse space, and consider downsizing your real estate. Communication technology now makes it possible for many employees to work from home. Employees like the flexibility of this arrangement and businesses can cut back on resources dedicated to office space.
Raise prices
Consumers know that price increases are inevitable. With memories of The Great Recession still hanging over the economy, you may be skittish when it comes to passing increased labor costs on to consumers. If a price hike for your product is necessary, sweeten the deal by adding value, or the perception of added value, to your product. Throw in a gift card or discount on a future purchase. Bundle services or products to present a new product package. As always, keep an eye on your competition, but if you've built a loyal customer base, a price increase won't scare them away.
Seize the opportunities of a minimum wage increase
While it may seem counterintuitive, a July 2015 survey found that 60 percent of small business owners favor an increase in the minimum wage. Why? According to John Arensmeyer, Founder and CEO of Small Business Majority who commissioned the survey, "Small businesses know raising the minimum wage would immediately put more money in the pocket of low-wage workers who will then spend the money on things like housing, food and gas." What does this mean for you and your business? As you work your financial plans, don't forget to look at your marketing plans. There will be more customers with more cash. What are you doing to bring them to your products?
This article was written Gillian Burdett for CBS Small Business Pulse.
