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The Impact of a Minimum Wage Increase on Small Businesses


Small businesses are the backbone of our economy. Unfortunately, they are also impacted more dramatically by regulatory changes. While large corporations can absorb certain costs and have huge staffs to help them navigate new laws, fluctuations in efficiency can have devastating effects on the bottom line for smaller enterprises. PayTech is here to help out the small businesses with the minimum wage increase. 

Adapting to the Minimum Wage IncreaseMinimum Wage Increase

In November, Arizonans voted in favor of Prop. 206, a state statute to incrementally increase the minimum wage between this year and then again in 2020. And while the future of the law is still unclear pending court action, in December, the Arizona Supreme Court declined to put an injunction on the law, meaning that the increase in minimum wage to $10 per hour has been effective since Jan. 1, 2017.

Oral arguments are scheduled for March 9, 2017. It is unclear what the result of those court proceedings will be—some speculate it will be either upheld or struck down entirely, while others see the potential for certain state contractors to be exempted from the law. At any rate, it is important that small business owners adapt to the new minimum wage and prepare themselves for the possibility of the increased rate being permanent, in addition to preparing for the minimum wage to increase to $12 per hour in three years’ time.

About Prop. 206

The first thing any small business owner should do to absorb the costs associated with increased wages is to carefully analyze monthly balance sheets. When most business owners estimate their payroll, they forget to factor in things like overtime and payroll taxes. By carefully examining where your money is going in terms of payroll, you should be able to find ways to trim the excess fat and keep yourself within budget. Alternatively, you mind find that altering your business hours or adjusting the staffing levels to optimize efficiency throughout the day will also help keep payroll costs down without interfering with the integrity of your business. If numbers are not your forté, contact us so that we can go over your balance sheet together.

Small business owners & minimum wage increase

Next, small business owners facing a minimum wage increase should assess their business offering to see which products or services are most profitable. Depending on your specific business and how all of the offerings play into the bigger picture, you may find that a strategy to streamline your product offering to focus on the money makers is an effective way to reduce costs and increase overall margins. Or you may find that your pricing could do with some adjustment. While this type of analysis is best left, yet again, to someone who is good with numbers, you will want to make sure that you or someone you trust implicitly is highly involved in the process. It may be that one of your products does not seem profitable on paper, but is the thing that helps you retain or upsell customers. There are a ton of variables that go into this. Reducing costs should always be on your radar, but it is never more important when faced with tightening your belt while trying to make sure you are still able to take care of all of your employees. If you have been using the same vendor for a product or service, now is the time to get quotes from other providers or to try to renegotiate your deal with the current vendor.

Minimum Wage Increase

Staffing reductions for small business owners

Lastly, staffing reductions are likely to be a harsh reality for many small business owners. In our experience with entrepreneurs, we know that this is an absolutely last resort and that nobody likes to fire people. But if it means the difference between shuttering a business and staying afloat, no sane person would fault you here, given that you have taken the steps outlined above to preserve as many jobs as you can. While there is nothing we can say or do that makes the act of laying people off more palatable, outsourcing or automating aspects of your business can make it easier on yourself and the remaining members of your workforce. This means that fewer man hours will be required to carry the load of the laid off employees.

The Silver Lining

While the direct impact of minimum wage increases may be painful for small businesses, there may be some good that comes out of it as well. For one thing, some prognosticate that employee turnover decreases when people are paid more. Others point out that more people will have increased spending power, meaning that it will have a “trickle up” effect of sorts as people buy more stuff with their hourly earnings.
Depending on how the upcoming court proceedings go, we will find out first hand exactly how big of an impact Prop. 206 has on Arizona’s small businesses and whether the minimum wage increase is a net positive or negative for the economy. What other steps are you taking to get your business ready in the meantime? If you have any questions, concerns, or would like to contact us for more information, please give us a visit!