Small businesses in eight states may want to start thinking about a strategy to offset the wage increases they may have to shell out to non-salaried minimum wage workers. Beginning on January 1, 2012, small businesses across eight states or 17% of the country will owe an additional $0.32 on average per hour or $665 per year for each minimum wage worker. This means that those with several employees in this category will owe several thousand dollars a year in additional wages. Is your business prepared for this wage increase?
Which states do the minimum wage increases apply to?
For now, Arizona, Colorado, Florida, Ohio, Oregon, Vermont and Washington have all raised the minimum wage that an employer must pay non-salaried workers on an hourly basis. In fact, in Washington State the minimum wage is now above $9 at $9.04 from $8.67 or a 4.2% increase. Many of the state legislatures have mandated a minimum wage increase to offset cost of living increases (i.e. inflation).
In addition, a group of economists that have researched the effects of state and federal minimum wage increases have stated that it can actually boost the economy because those workers will be spending more which may create jobs elsewhere. We would argue though that small businesses are facing a very difficult economy and 15 years of research is not necessarily indicative of what will happen today. We expect certain small businesses to act boldly.
How should small businesses react to the increase in minimum wages?
For one, any small business employing minimum wage workers in any of these states should revise their 2012 budgets. Each of these employees will now cost over $600 annually from the previous year which doesn’t include the additional payroll taxes you’ll have to pay for the increase in wages. Depending on your situation, this may mean cutting down on hours for certain workers (except the top performers) or reducing certain employee benefits currently offered.
Another option is to explore an automated process that can replace the work done by one of these workers. For instance, certain restaurants and other service businesses may want to explore an automated reservation system which replaces the cost of having a receptionist book reservations during the day. This may have been an expensive option in the past but now that wages have gone up, it could actually be cheaper in the long-run. But, before you make the change, first ask your customers for feedback on your plans. Cutting expenses will not be all that beneficial if you also take a hit on the top-line.
More Questions? Ask your finance questions online.
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