Finances and Taxes

3 Business Owners Share How They Handled Minimum Wage Hikes—Without Losing Employees

Sarah Hall Freelance small business journalist 
woman working in flower shop

Your employees may be due for a raise soon. That is, if lawmakers in Washington, D.C., pass the Raise the Wage Act of 2019 and more than double the federal minimum wage to $15 per hour.

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The federal minimum wage increase is currently a topic of contention amongst lawmakers—but even if the bill never becomes law, you may still want to prepare your business for higher minimum wage rates. That’s because many cities and states across the country are passing their own local minimum wage hikes.

Twenty-nine states currently require a minimum wage that exceeds the federal rate, and several states have enacted measures to raise their rates to $15 over the next five to six years.

Of course, higher minimum wage rates mean higher labor costs for many employers. As more states and municipalities boost wages, plenty of small businesses have had to react.

Here’s how three small businesses owners handled local wage hikes in their areas.

This small business raised prices and added employee perks.

Hourly wage workers at The Wright Gardner, an interior landscaping business that operates in the San Francisco and Sacramento areas, earn about 25 percent more than the local minimum wage. Still, minimum wage hikes in those areas spurred the company to raise its pay rates further to stay attractive to job seekers.

To keep up with market rates without breaking their budget, Nick Haschka, the CTO, says he also looks for perks or new policies to add that could raise the company’s total compensation package. For instance, The Wright Gardner recently upped its mileage reimbursement to the maximum rate and started a 401(k) plan for employees.

“There are many other compensation mechanisms to change that can help a business adapt,” he says.

To pay for the added costs, the company has increased its per-hour labor costs four times in recent years—from $55 to about $90 today. Despite the higher price, Haschka says there’s been little pushback from clients. Compared to other business costs, moving plants, he says, is relatively cheap for his customers.

“Often times, they don’t blink at that price increase,” he says.

Rolling out price hikes might not be so easy for other business owners who worry they’ll turn customers away when the price of their morning coffee or monthly manicure goes up. If a price hike is required, small business owners say it’s best to spell out why the costs are up and be upfront about your decision.

If new laws in your area force you to increase your own labor costs, your customers may be dealing with the very same issue at their workplaces. They might understand.

“Everybody is experiencing the same phenomenon,” Haschka says.

This small business shaved office hours as wage rates jumped.

When the minimum wage went up in San Diego to $11.50 per hour in 2017, SellMax, which buys cars across the country and operates a 29-person call center, shortened its office hours.

“Our customer service operations were 7 a.m. to 9 p.m., and we’ve had to shorten them by a few hours to avoid layoffs,” says Sean Pour, SellMax’s CEO.

On January 1, 2019, San Diego raised the minimum pay rate to $12 per hour, a hike that hasn’t forced any changes at SellMax for now.

“We have to look at the numbers and evaluate later what needs to happen going forward,” Pour says. Automating customer service is an option, though live operators help the company build relationships with its customers. But, he says, if it’s no longer cost-effective to maintain the call center because of higher labor costs, he may have to let some employees go.

This small business made a move—to where labor is cheaper.

As the minimum wage went up in Sacramento, Matthew Ross, co-owner and COO of e-commerce sites RIZKNOWS and The Slumber Yard, made a big change. In spring 2018, he and his business partner moved to Reno, Nevada, where the minimum wage is $8.25 per hour, compared to Sacramento’s $11.75.

Ross’s employees make more than minimum wage, but when they start working at the company, they’re paid a rate that’s close to it. And when the minimum wage increases, Ross will also raise his employees’ wages so the business can continue to be attractive to job seekers.

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All the company’s employees made the move to Reno, Ross says. And he recently extended job offers to two more people, which the cheaper labor costs in Nevada made possible.

If the minimum wage goes up in Nevada, Ross says the company would have to take a critical look at their current employees, potentially laying off staffers that aren’t revenue drivers and splitting their responsibilities among the remaining workers.

“We’d definitely have to revisit our hiring strategy,” he says.

We know, a move like this isn’t so simple for a brick-and-mortar boutique, law office, or other professional businesses with certifications or licenses to practice in a specific area. But it could be a smart option for companies like Ross’s that do most of their business online—or those with leases that are about to expire.


Like plenty of bills in Washington, D.C., the Raise the Wage Act of 2019 could very well get lost in the lawmaking process. But that doesn’t mean your small business is off the hook.

As states and other jurisdictions seek to lift workers out of poverty, they’re changing the minimum wage game themselves. And you can take steps to make sure your business is ready to embrace the change.

Updated: November 1, 2019

Sarah Hall
Sarah Hall Sarah Lindenfeld Hall is a longtime journalist and freelance writer based in North Carolina. Her specialties include small business, entrepreneurship, health, and parenting topics.

Comments

  • Felicia

    I smiled when I read this article about small businesses and minimum wage increases. If Legislators looked at how many businesses have 5 employees of less perhaps they’d rethink their “studies” on the impact that it will have on the economy. I own a business with three employees and I will need to significantly raise my prices to afford the increase. This will eventually force me to close my business because I will not be able to compete with the internet. There are so many businesses that this will affect. Walk around a neighborhood in a smaller city and see how many “Mom and Pop” businesses there are. Government does not look at these shops when referring to small business. My business makes roughly $150,000 a year. Each one of my employee’s have been here for more than 3 years. One has been here for 10 years. Wouldn’t they leave if they couldn’t work for what I pay? It’s a very easy job. Most of the time they have nothing to do, but I need them to keep the store open. I believe people should be paid by the job, not by what the government says. If an employee doesn’t like the pay, find a different job. Minnesota jumped the small business minimum wage by $1.50 the last year. Fortunately I was already slightly above it. I am trying to slowly raise my employee’s wages, but soon I will not be able to keep up with the increases. The worst part is that if I need to hire a new employee, who is going to work for me at the lower small business minimum wage? You can go to work at McDonald’s for more. It looks like my future and the future of my employees is the unemployment line. It’s a shame after being in business for 25 years.

    Reply
    • Gusto Editors

      Hi Felicia, thank you for sharing your thoughts — and your story! We’re sorry to hear you may have to close your business in a few years. Hopefully, it doesn’t come to that. Did any of the tips in the article resonate with you?

      Reply
  • Liz

    Hi!
    My name is Liz and I am writing this question purely out of ignorance – because I truly do not know. I read Felica’s comment and it’s sad to hear that she may close her small business. That is horrible. I hate the idea of mom and shops going away.

    I do NOT want to put mom and pop shops out of business. I hate Walmart and amazon and choose to not shop there. But Walmart, target, McDonald’s and amazon CAN afford a $15 minimum wage. I know amazon is doing it now. But they absolutely can. It is almost like these stores are waiting for it to be $15 so all the competition is pushed out before they have to pay $15 an hour. It’s sad.

    Going back to what Felica said about the government staying out of what to pay and the person to be paid by the job, that is great but minimum wage was implemented because of greed and unfairness wasn’t it? I mean if there was no minimum wage and it was by the job Joe could receive $11 and hour while Bob receives $15 and it could be “by the job” on books but really it could be because they like Bob more or go golfing with Bob or are in a relationship with Bob I can name more and more crazy scenarios but you understand.

    Lastly, almost half of the work force is small businesses. Not all of these people are 18-24 and while it’s easy to say get a better job if you don’t want this gift shop job pay it’s not that easy. As a 30 year old with office experience and a college education it’s incredibly difficult to find a job. I applied to over 40 jobs this summer alone and I either didn’t hear back or I received some type of rejection letter.

    So I just don’t know. Not all small business can have high school kids or 18-24 year olds working for them. That is not even close to half of the job market employees working for small businesses -it’s just a small percent of the employees. Plus these small businesses want responsible and experienced people (much of the time) and who is going to want to do that if it’s only $8 an hour? It’s sad because despite what you make an hour prices DONT change. Exxon/Mobil won’t give me cheaper gas because I make $8 an hour. AT&T won’t give me a lower phone bill because I make $8 an hour. I can’t Not have car insurance. So things don’t change for people who are poor. It’s easier for someone making $30 an hour to pay for gas to get to work than it is for someone making $8. I don’t want it to come down to working for corporations where we are all sheep and conform to this and only have the option of Walmart items and amazon items and THATS IT.

    Maybe the government should give more of a tax break to small business owners especially the owners with 50 employees or less instead of a tax break for huge corporations and the incredibly rich. I don’t know.

    Please help me understand because I am not a business major or in that field but I truly want to know and understand the problems we face today. Thank you.

    Reply

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