Not surprisingly, the issue of employee compensation is extremely important across America and the minimum wage requirement is always a hot topic with small business owners.
The Raise the Wage Act of 2019, currently being debated and voted on in Washington D.C., would:
- Gradually raise the federal minimum wage from $7.25 to $15 by 2025;
- Index future increases in the federal minimum wage to median wage growth to ensure the value of minimum wage does not once again erode over time;
- Guarantee tipped workers are paid at least the full federal minimum wage by phasing out the
subminimum wage for tipped workers, which will ensure consistent, livable pay without eliminating tips;
- Guarantee teen workers are paid at least the full federal minimum wage by phasing out the rarely used subminimum wage for youth workers; and
- End subminimum wage certificates for workers with disabilities to provide opportunities for workers with disabilities to be competitively employed and participate more fully in their communities.
This act could get lost in the lawmaking process. But that doesn’t mean your small business is in the clear.
Minimum wages in many states are trending up over the next several years. In fact, twenty-nine states currently require a minimum wage over the current federal rate, which is $7.25 an hour in July 2019. Several states have measures in place to raise their rates to $15 over the next five to six years. For data state-by-state minimum wage information, read: State Minimum Wages | 2019 Minimum Wage by State.
Higher minimum wage rates translate to higher labor costs. As hourly compensation is boosted across America, small businesses have had to come up with strategies to comply. Here are a few ways you can combat rising costs due to a minimum wage rate hike.
Implement Incremental Raises
Stay on top of the minimum wage news out of Washington. If it looks like wages will increase, consider incremental raises for your employees to elevate them to the new level. This will give you time to adjust and prepare for evolving payroll expenses that affect your bottom line.
If new laws in your area force you to increase prices, your customers may be dealing with the very same issue at their workplaces. If you simply put up a sign or a note on your website explaining how a recent wage hike affected prices, your customers might understand and continue to shop with you. It’s always a good idea to remind consumers that “shopping small” is good for both the overall US economy and the local economy!
One of the best ways to increase your bottom line and prepare for a shift in labor costs is to cut expenses. Overhead is often an area where there are unnecessary costs that can be eliminated without sacrificing service. Review your office supplies, utilities, and equipment purchases to find areas where you can reduce. Things like allowing your employees to telecommute a few days each week can lower electric costs. Cutting out travel and using services like Skype or Google Hangouts for meetings is another way to cut down.
Take advantage of software to eliminate routine tasks. Financial software services can automate much of your bookkeeping tasks, like accounts payable and receivable. Software can also make it easier to balance your accounts and track collection procedures. If you’re already using software, review annually to see if it’s worth the cost.
Reduce Labor Costs
Salaries and wages are one of the largest costs for every company and can be the most difficult to control. Lowering your labor costs after a minimum wage increase can help reduce cash flow problems.
According to Businessweek Magazine, employers can save up to 30 percent by hiring an independent contractor. This is because you won’t be responsible for paying payroll taxes, unemployment insurance, workers' compensation and disability, as well as benefits that include pensions, sick days, health insurance, and vacation time. Make sure you are correctly classifying the type of workers you have hired. The IRS takes worker classification seriously and you might be on the hook for fines and back pay if an employee is incorrectly identified a freelancer or contractor. To help you determine if you need an employee or a contractor, review the scope of work, advantages, and disadvantages of each: Hiring Help: Do You Need an Employee or Independent Contractor?
Since employee turnover is expensive, strive to put a positive company culture in place. Perks like the ability to work remotely and other non-monetary compensation can help retain employees. Here’s a blog post exploring ways you can keep your workers content: 5 Simple Ways to Make Your Small Business Employees Happy.
Explore Low-Cost Financing
Securing a small business loan with low rates, long terms, and very low payments can help you weather rising wage costs. Low-cost funding can help small business owners in a few ways like helping to manage cash flow by providing valuable working capital. Refinancing high-interest existing debt with a low-cost loan can save a business owner hundreds or even thousands per month.
Consider applying for low-cost SBA loan, a bank term loan, or an accounts receivable line of credit through the SmartBiz Loans bank marketplace. Our online process streamlines the application, saving time and speeding up time to funding. Additionally, SmartBiz financial specialists are on hand to discuss your options. There’s just one easy application to complete here. We’re proud that about 90% of the applications we refer to our bank partners are funded.