Planned minimum wage hikes across the US, and in many other places in the world, continue to be finalized. Small businesses are beginning to feel the weight of the added cost, especially those who have grown used to the minimum wage frozen at $7.25 an hour. Coupled with operation costs and extra expenses from emergencies, short-term mistakes and long-term marketing blunders, the effect this has on small businesses is quite serious.
The Financial Impact of the Minimum Wage Hike
Payroll is the most expensive part of running a business. Knowing this, one can already imagine the degree of the impact a minimum wage increase of even a dollar per hour can have on business, especially smaller ones with more than a handful of employees. An employee that works for $7.25 an hour, 40 hours per week, will cost the business $15,080 annually. The most conservative minimum wage hikes raised the federal minimum to $9. By applying this to 40 hours per week, a single employee will cost a business $18,720 per year.
And that’s only the basic wage cost; businesses also have to take care of payroll taxes and benefit packages such as the 401 k. To add to that cost, insurance packages such as worker’s comp insurance is mandatory in most US states, according to Cerity. While many states are trying to parcel the wage hike out slowly to lessen the pressure on businesses, in the long run, the impact will still be very noticeable.
How Small Businesses Can Adapt to These Changes
To stave off the ill effects of the wage hike, business analysts recommend a general audit of all assets and expenditures, in order to find out if there are any inefficiencies that the business would be better off without. That means cutting off unpopular offerings to cut down on supply costs, hunting down unnecessary costs, reducing the amount of employee hours, and perhaps most difficult, reducing the staff.
If the last option seems a bit too harsh, there are alternative cost-cutting methods, such as raising prices and seeking more affordable suppliers, services, and insurance packages. Cigna has put up a handy guide to help you shop for affordable health insurance for your employees, and The Balance has put together a top 10 list of the best wholesaler directories to look for cheap suppliers if you’re in retail.
It won’t be the easiest task, and businesses will likely feel a significant weight passed on to them by the time the decade is done. Still, this is the latest in many thousands of changes in the economic landscape of the world, and businesses have proved time and again that survival is simply a game of adaptation and shrewd ingenuity.