10 Tips to Help Your Business Survive a Minimum Wage Hike

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Minimum wages are rising. On Jan. 1 this year, increases hit employers in 14 states, according to the National Conference of State Legislators.

The minimum wage discussion can seem confusing. After all, there’s a federal minimum wage ($7.50 an hour since 2009) and state minimums. And often, they’re different.

But it’s easy to know which law to follow: As an employer, you are required to pay whichever is higher, your state’s minimum wage or the federal minimum. (See minimum wages in each state on this Federal Department of Labor map.) There are a few exceptions to the law — for employees who work for tips, younger workers and students, for example. The DOL lists the exceptions here.

More cities and counties are setting their own minimums, too. (Governing Magazine maps cities’ minimum wages). Currently, pressure to increase pay is particularly strong on the expensive West Coast, as this National Employment Law Project table shows.

Where state minimum wages are highest

Most states set their own minimum wages. About half of these are above the federal minimum wage. The highest state minimums, according to 2015 DOL data, are:

  • Highest: $10.50 an hour, in Washington, D.C.
  • Next highest: Washington state ($9.47), Oregon ($9.25), Vermont ($9.15) and Connecticut ($9.15)
  • Where the minimum wage is $9: Rhode Island, California, Minnesota and Massachusetts

The burden

Understandably, some employers feel their business threatened by rising minimum wages. And yet, a surprising number support the trend: 60 percent of small businesses surveyed in mid-2015 by the Small Business Majority, an advocacy and research organization, were in favor of gradually lifting the federal minimum wage to $12 an hour by 2020. Most had between two and five employees, and half of them said they already were paying employees $12 an hour or more.

On the plus side, many economic researchers say higher wages give employees an incentive to stick around, reducing turnover and employers’ costs for training and hiring. But there’s no denying that wage increases come directly out of an employer’s profits. How, then, do employers face this challenge, or threat, and survive? Here are 10 strategies that help businesses survive:

1. Get a coach

No doubt you have streamlined your business in every way imaginable. Even so, an outside expert may spot some inefficiencies that you have missed. Two places to turn:

  • SCORE: A nonprofit association that works with the Federal Small Business Association, SCORE matches volunteer mentors who have business experience with small business owners and startup entrepreneurs. There’s no cost. Other benefits include free confidential counseling by email or in person, free or cheap workshops, and online tools and information. Find a SCORE chapter near you.
  • An accountant: A CPA who specializes in working with small businesses may be able to suggest efficiencies or tax savings that you have not considered. Before hiring a CPA, screen your candidates by interviewing several, and ask detailed questions about the kind of help you need. Listen carefully to the answers and reject those who avoid offering specific solutions to address your concerns.

2. Bring in family

If you have to trim staff hours, see if you can get family members to pitch in in the place of staff. Immediate family, particularly, may not require a wage — at least not for a while, as they help you over this hump.

3. Raise prices

You don’t want to raise prices and raising prices may not even be possible, depending on what your competition is charging. Certainly, passing on increased business costs to customers is a last resort. But if it has been a while since you have raised prices, it may be time to look at the option.

4. Adjust your hours

Some businesses, like restaurants or small shops, can close their doors during the slowest hours of the day, allowing them to trim labor costs a bit. Closing earlier or opening later are other ways to trim wage costs.

5. Reduce staff and take on more yourself

Another way to trim labor costs is cutting staff hours and making up the difference by doing more of the work yourself. It’s not an appealing option, of course. If you’re a small business owner, chances are that you already are overworked, or that you worked yourself crazy in the past to finally get to the position where you could concentrate more on the business and less on day-to-day tasks. Taking on more work, however, is the fallback solution for every small business owner.

6. Wait and see

Minimum wage laws typically don’t immediately bump wages all the way up to the top amount required. They are gradually phased in. One option is to hold off acting right away, keeping an eye on how increases affect your business while you assess other choices.

7. Use more pre-made items

With their slender profit margins and dependence on minimum-wage workers, restaurants are hard-hit by minimum wage increases. QSR Magazine, a trade magazine aimed at quick-service and fast-food restaurant businesses, advises its readers to cope by using more pre-packaged ingredients to trim labor. Such value-added ingredients are more expensive, but they help ensure consistency and “as long as the impact of the labor reduction is greater, then you should be better off,” the magazine says.

8. Automate

Don’t overlook the value of creativity and courage. Maybe you have resisted change, out of fear of technology or comfort with the familiar. Take a second look at how technology might help you lower costs. For example, see about trimming money spent on business services by using one of the small business accounting software products that handle payroll, accounting, invoicing and taxes. Use free trial subscriptions before committing to a purchase. Top Ten Reviews shares its picks for the best of the bunch.

9. Go green

Energy efficiency is good for the planet and it’s also good for businesses. Trim utility costs by taking a hard look at energy and water use and investing in newer, conserving technologies whenever you can. Switch to LED lightbulbs (Read “5 Simple Rules for Choosing the Right Money-Saving LED Bulbs” and “10 Ways to Fight the Record Cold and Save Money“) where it makes sense — in the parts of your office or business where lights are used most

10. Simplify

Take a cold, hard look at the areas where your business spends most. It may be that by eliminating your most costly services or products, you’ll be able to make up the revenue lost to wage increases.

Are you a small business owner facing rising labor costs? What are your concerns and strategies? Share with us in comments below or on our Facebook page.

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