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.
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.
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.
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.