Ontario is lifting minimum wage from $11.60 per hour to $14 per hour in 2018, and then to $15 per hour in 2019.
There are mixed feelings about such wage increases. While many workers and labour activists applaud the move, some business owners and employers have concerns about what the increase could mean for their businesses. Here are a few changes and challenges you may see in your business.
Higher Wage, Lower Profit?
Higher expenses necessarily affect your bottom line. Even strategically managed businesses with healthy profits will likely see the bottom line change in relation to the reality of paying workers more.
There’s a reason profits may actually increase, however: A wage increase boosts buying power in the lowest economic brackets. While most observers hope this is enough to push more people out of poverty, it could also mean businesses see new clients.
It makes sense. If more people have more money, they’ll be able to afford more. It could mean they choose a slightly more expensive phone plan or it might mean they go to the movies more often. A $15 minimum wage won’t turn the average café barista into a multimillionaire, but it could mean they have just a little more spending money.
The end result? Some businesses might actually see higher profits as they attract new clients and existing clients upgrade their services.
Prices Follow Wages?
Some business owners and economists suggest a higher minimum wage will have a limited positive effect on consumer buying power. Their argument centres on inflation, which might jump when the wage increase rolls around.
Why would a higher wage push inflation? Many businesses are already suggesting they’ll need to raise prices to stay profitable in the face of higher expenses. While minimum wage isn’t the only factor affecting inflation, such a large wage increase could raise it.
This may or may not be the case for your business. You may find it better to hold your prices steady so you can attract new customers with a better deal. A higher minimum wage, as discussed above, doesn’t necessarily mean lower profits.
If inflation does increase, you may find yourself in a position of needing to raise prices in order to remain competitive and profitable. Some businesses will need to raise their prices immediately.
Scale Back the Workforce?
Another concern is higher minimum wages will mean employers hire fewer people. In order to keep expenses in check, employers may decide to let some staff go. The grocery chain Metro, for example, has announced its intent to stop operating 24-hour stores in Ontario. Their logic is scaling back operations will help offset increased workforce costs.
Such a move probably means they’ll also scale back their workforces. If the stores are no longer open round the clock, they don’t need to staff those stores constantly. Fewer cashiers will be able to get the job done in fewer hours.
You may not be in a position where scaling back your workforce is an option. Many business owners and employers will try to rationalize their workforces as best they can, which is a smart idea. Using human resources tools, such as an HRIS, could make the task of scheduling your employees easier and more efficient.
Things Will Change
There’s one thing you can be sure of. The minimum wage increase will change the business landscape. Smart business owners will employ a number of different tactics to ensure they stay profitable. They’ll also recognize the need to employ their human resources as effectively as possible.
If you want to come out on top, consider some of the different methods discussed here. Also consider the different tools you can use to manage your workforce and compensation more effectively. With strategic planning and the right tools, the minimum wage increase could be less detrimental for employers and employees alike.