How to Prepare Your Business For the $15 Minimum Wage Hike
It’s an issue that’s been heatedly debated among politicians, businesses, and employees, but chances are, your city is soon to be experiencing a hike to a $15 minimum wage. Seattle, Los Angeles, and San Francisco are on the front lines of the progression to lift the citywide minimum wage to $15 in the next few years. New York state has recommended a $15 minimum hourly wage for fast-food chains and their employees by the end of 2018.
What About Employees and ROI?
What does this mean for companies? Well, that’s still up for debate.
Some politicians and economists argue that it will actually hurt employees — the higher costs of business will cause organizations to lay off more workers, and others could turn to automation to cut costs. According to The Wall Street Journal, fast-food chain McDonald’s has already announced plans to reduce its cashier workforce, instead turning to automated machines for customer checkout.
Businesses — particularly small businesses — are concerned what these mandatory wage hikes will do to their ROI. Brett Bastian, CEO of Salt Lake City, Utah-based Blast Moba, told Business.com that this impact on his company’s ROI will eventually hurt the consumer:
“As a business owner, my biggest expense is labor. Increasing minimum wage from $7.25 to $15 is doubling it. This is a huge burden to businesses but the cost will get passed on to consumers. I have a business partner who said he will have to increase his prices by 40% if it happens.”
However, some economists disagree with this negative assessment. According to Business.com, the former chief economic adviser to Joe Biden, Jared Bernstein, said that the downsides would be outweighed by the economic impact of pay gains for low-income employees. He also noted that businesses have several years to prepare.
If businesses do have this time to prep for the $15 minimum wage, there are three major things they should do to plan.
#1. Dig Into Your Finances
It’s time to get real. No company can effectively understand the impact of a mandatory $15 minimum wage if they don’t have utter transparency into their finances. Understand your cash flow — your revenue, your expenses, and your profit. Look at what your exact figures are in labor costs now and how you anticipate them to change. This will give you the accurate figures to understand how the wage hike will affect you specifically as a company, outside of the talking heads in the media.
From here, and only afterward, can you move forward building a strategy for hiring and managing the changes in wage policy.
#2. Streamline Hiring
After you have evaluated your finances, you may see things right off the bat you can change to help your changing ROI when it comes to hiring. And it doesn’t always mean laying people off. The better word would be “streamlining.” In this area, efficiency is key, but not to the extent of overworked employees.
Patrice Rice, founder and CEO of hospitality recruiting company Patrice & Associates, told Bloomberg her advice she doles out to restaurants and other companies when it comes to cutting labor costs:
“You can manage a larger payroll by analyzing peak days and times and not scheduling people on slower shifts. You don’t need three cooks, a sous chef, and an executive chef standing by if you don’t have the volume to support that staffing level.”
Trimming the hours may seem like bad news to employees, but by building in this efficiency of employees not standing around during off hours, it increases their opportunity for tips at the peak times they are scheduled — which often can more than offset the hourly wage difference.
If you treat your employees as an investment, you are less likely to make a quick hire to fill a need and cost yourself money when they exit the door in six months. Turn your attention toward recruiting and hiring candidates that fit your culture, your brand, and your values — not to mention have the skills for the job. It will save you money in the long run.
#3. Boost Your Prices Knowledgably and Creatively
If your business must ultimately boost prices to save your ROI, make sure they are educated — and innovative — adjustments. Bob Puccini told Business.com that he supports the minimum wage changes, and he has already made simple changes that he sees affecting his bottom line. Puccini is the chief executive of Puccini Group, based in San Francisco, a company that creates and runs restaurants inside hotel, hospitals, and cruise ships. As he told Business.com:
“In San Francisco, the cost of living is too high for anyone to live on minimum wage. And in my experience, the majority of people making minimum wage are not teenagers. They’re women trying to support a family. If we didn’t pay them more, they would have to deal with food stamps and other government assistance that costs all taxpayers more in the long run.”
To support his company with San Francisco’s proposed increases, Puccini did a major evaluation of his company’s clients’ financials — in particular their menu item costs and popularity. He singled out the most popular dishes, he said, the ones bringing in the most money, from each of his clients’ restaurants, and then he boosted the prices by as little as a few cents each. While the customers barely noticed any changes, the restaurants and the Puccini Group certainly noticed that the changes made a big impact.
Likewise, dishes that were costing the most money to produce and not seeing the same popularity were eliminated from the menu.
Following Puccini’s plan, companies can adjust their prices smartly. Major changes could upset their customers or clients, but smaller, targeted changes could be a win-win.
The $15 minimum wage mandate is all but certain. Businesses should be using the time before its implementation to ready their organization for the changes.