Regardless of which side of the political fence you come down on, it’s safe to say that minimum wage is a hotly debated topic in this country. Maybe the best example of this is the federal Raise the Wage Act of 2019. If it passes, the federal minimum wage will increase by roughly $1.30 per hour every year until 2024, when it reaches $15 per hour.
Even if it doesn’t pass, many states have already proven themselves willing to step up and account for the difference anyway. New York and California are two of the most prominent examples, but 21 other states (along with Washington, D.C.) are going to increase their minimum wage in the next year.
So, whether you want it to or not, the minimum wage is about to increase. Is your business ready for that day? Now would be an excellent time to find out.
Are You Ready for the New Minimum Wage? Breaking Things Down
As an employer, the most important thing that you can do to properly prepare yourself for any new minimum wage law that might affect you involves making sure that you understand the impact it might have in the first place.
As an example, let’s say you currently have 15 full-time employees who are all making an average of $11 per hour. In terms of this discussion, we’ll define a full-time employee in the traditional way, meaning one who works 40 hours per week.
Right now, that means you’re paying about $6,600 to those employees in the form of wages each week. They’re already making $11 an hour, which is close to the proposed $15 minimum wage increase. It’s easy to think to yourself “honestly, how much difference could a few dollars make?”
The answer, as it turns out, is a big one.
Increase the wages on ALL of those employees, and suddenly you’re looking at $9,000 in wages for those same people, or an increase of $2,400 per week. That’s suddenly $9,600 extra per month you have to come up with, which is equivalent to about $115,200 per year.
Regardless of what your politics are, you have to be aware that this could significantly impact your cash flow if you’re not prepared for it.
Imagine this: you unexpectedly have to call a plumber one week and weren’t prepared for it. Whatever task you need completed is quoted at $800, and while you probably would have had money for it in the past, that’s no longer a guarantee.
Now, none of this is to say that you should suddenly lay off some of your workforce, or cut back on everyone’s hours, or take any one of a number of other reactionary steps to this news. Absolutely any risk in life can be mitigated provided that you take the right proactive steps.
As a way to offset minimum wage increases, consider looking for ways to increase productivity. See how you can use technology to automate, for example. Instead of requiring those employees to spend hours per week on menial tasks like data entry, use automation to free up as much of their time as possible so that they can focus on more important tasks.
Likewise, be more selective in your hiring process in the first place. Be more judicious about selecting the types of candidates who: A) really do rise above the rest, and B) who are more likely to stay in your organization for the long haul.
Yes, significant minimum wage increases around the country are going to be an adjustment for many business owners. But they’re NOT some insurmountable hill to climb, provided that you begin preparing for the new rates as soon as you can.
Frank Jenkins, CPA writes for CountingWorks, an accounting news and advice website. Reach him at [email protected].
About Frank Jenkins Jr
Frank Jenkins Jr. CPA is the managing partner of Adams, Jenkins & Cheatham, a CPA practice based in Midlothian, VA. Frank specializes in Consulting services, tax planning, audit & assurances. "I genuinely care about our clients because I have a personal connection with them." He is active in the community and belongs to the AICPA and the VSCPA.
