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Minimum wage increases and small business Thumbnail

Minimum wage increases and small business

In November 2017, the Ontario government passed the Fair Workplaces, Better Jobs Act. In addition to changes to sick days and vacation entitlements, the act increased Ontario’s minimum wage from $11.60 to $14 per hour beginning January 1, 2018, with a second increase, to $15, scheduled for January 2019.  And Ontario isn’t alone.

Quebec’s minimum wage was hiked to $12 in May, Alberta’s will rise to $15 in October, and British Columbia has scheduled annual increases to bring its minimum wage to $15.20 in June 2021.

While most wage increases haven’t been as extreme as those in Ontario, businesses in every province are adjusting to rising labour costs. And while the adjustment may be challenging for business owners, higher wages are not necessarily a bad thing. Some small business owners actually embrace a minimum wage increase: employees who earn a better wage are more loyal, productivity is higher and employee turnover is low, which is overall better for business.  What’s more, some economists believe that by putting more money into the pockets of employees, the increases may help improve the economy.

Considerations beyond wages

If you’re a small business owner, a wage increase can affect more than your payroll costs. Employers must also recalculate amounts for Canada (or Quebec) Pension Plan and Employment Insurance deductions. You may also see other costs increase as companies in your supply chain raise prices in response to increased labour costs. But preparing for the effects of a rising minimum wage – or any other cost increase – is simply good practice. There are several ways that a small business can manage it, while retaining valuable employees and staying profitable.

Review your business plan

This is a good opportunity to dust off that old business plan or financial model and review spending to determine where costs can be cut. Are there unnecessary or luxury items that can be eliminated or reduced? Cut costs that aren’t critical, and reallocate the savings to payroll.

Your business plan review might indicate that more drastic measures are needed to keep the business on a solid financial footing. You may need to adjust staffing levels or possibly reduce hours of operation. Perhaps your pricing strategy needs to be updated. Review your historical financial data and reforecast your expenses with these elements in mind to see how you can reduce the impact of higher labour costs on cash flow.

Consider streamlining your offerings

Rather than focusing on employee costs, think about simplifying your company’s product lineup. Review your full offering and consider cutting any products or services that underperform. To help increase your margins, try to sell only what makes the best return on investment.

You may, ultimately, have to adjust your pricing to keep up with a wage increase. However, a properly communicated price increase, one that is focused on the level of service and the well‑being of employees, can help deliver higher margins without affecting customer loyalty.

Focus on employee loyalty

If payroll is your biggest expense, it’s a good idea to review staffing levels. Before making the decision to let employees go, analyze your workflow to cut out inefficiencies, and look at possibly automating some processes or trimming certain shifts. Would you be better off with a few full‑time staff rather than several part‑time or temporary workers? And consider this: if you pay workers low wages, the cost of turnover and constant training may be higher than paying higher wages to retain good staff.

Employee benefits are often cut in an effort to save money, but this can significantly impact employee relations, loyalty and productivity. Explore cost sharing of employee benefits, and review your plan design to see if there are opportunities to save costs. Your advisor can help pinpoint the benefits your employees use most and can recommend changes to the plan to reflect usage.