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What small businesses can do to survive a minimum wage increase

By July 23, 2019 No Comments

(This post originally appeared on Philly.com)

This week the U.S. House of Representatives is planning to vote on a bill that would increase the national minimum wage from $7.25 to $15 an hour. Although there is still some debate among the Democrats who hold a majority there, many expect the bill to pass. Still, it is expected to face stiff opposition in the Republican-controlled Senate.

Regardless of the congressional vote, there is one thing for certain: Mandated minimum wages across the country — and in this area — are going up. Cities and states such as Seattle, San Francisco, New York and California have already passed legislation phasing in an increase to $15. Earlier this year, legislators in New Jersey, where the minimum wage is $10 an hour, voted to increase the rate to $15 by 2024. Pennsylvania’s Gov. Tom Wolf has recently called for a similar increase. A move to increase Delaware’s minimum wage from $8.75 an hour to $15 died in the last legislative session, but supporters are vowing to renew their efforts next year.

Whether you support a minimum wage increase or believe the reports — such as the recent one from the Congressional Budget Office, which concluded that a raise to $15 an hour would cause the loss of 1.3 million jobs — really doesn’t matter. You can take your opinions to your local representative and let your voice be known in the voter’s box.

If you’re a business owner, then what does matter is that you’re prepared. What if the federal minimum goes up to $15 an hour, or even $10-11 an hour as many, including the president, support? Or what if your state’s minimum wage increases regardless of whatever happens in Washington? What are your options?

For most businesses, there are really only three.

For starters, you can raise prices. That, of course, is easier said than done. But the fact is that if a minimum wage hike becomes the law then your costs will be going up. Even if you’re paying your employees well above the mandated wage, just know that an increase in that rate has an effect on all wages, because what would a more experienced employee say if he or she were making $15 an hour (twice the federal minimum before) and now only making the minimum or even just a few dollars more? Many would expect an increase in their own rate just to maintain parity. You’ll need to step up, and your only option may be to increase prices.

It’s not all bad news. Some business owners believe that an overall increase in prices could provide additional benefits to the customer. Shelly Walker, the owner of Fairmount Bicycles in Philadelphia, thinks that an industry-wide price increase would improve overall safety and quality. “We need skilled mechanics, but society doesn’t seem to value that skill set too much,” she says. “If we could all agree that this was a valuable service, we could then agree that it should cost more and that the extra money should go toward these skilled mechanics.”

Others, such as Erin Chizmar, who owns Bolete Restaurant in Bethlehem, may not have any other choice. “Food costs are increasing while people are less willing to pay more for dining,” she says. “For small, independent restaurants, the profit margin is so small that a significant wage increase would have to be offset somehow.”

Another option is to cut costs. That’s because if you can’t raise prices that much, or at all, then the difference has to be made up from somewhere. Head counts may indeed need to be reduced. Overhead would have to be shaved. Expenditures would have to be cut from somewhere, even if that means taking home a reduced paycheck. Even Walker, who supports a minimum wage increase, admits that a wage hike would discourage her from hiring teenagers who need lots of training and direction because she couldn’t handle the additional cost.

Others, such as Bonnie Offit, who owns Bonnie’s Toppings in Stone Harbor, would have to change their hiring model. “I will need to make some adjustments in the ages and number of teens that I can have in my shop at one time,” she says. “Going forward, I will need to make smart decisions on how to best manage the employee pool. I would have hoped that seasonal businesses would be exempt so that we can have two teens in the shop even when it’s slow and train new young teens”

Finally, you can invest in technology. Do you think all those self-service kiosks in pharmacies, airports, gas stations and food stores are there merely for convenience? Are those fully automated grocery stores from Amazon, robots assembling cars for BMW, or text-messaging bots from CVS reminding you to renew a prescription there just for fun? Of course not. Those companies are investing billions in technology to operate “more efficiently,” which often means fewer people.

Sure, there’s a big up front cost. Yes, you may need to get financing to afford these things. But that’s what many business owners are doing. Robots and self-service machines don’t need a minimum wage, health insurance or vacation. That sounds harsh and it is. But it’s also reality.

Even though the minimum wage is trending up, the good news for small-business owners is that most of these laws are being phased in over a few years. So there’s time to adjust. But don’t wait to take action until a law is passed. My smartest clients are laying the groundwork now. They can see the writing on the wall.

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