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6 tips to help small biz reduce minimum wage hike impacts

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Recent legislation in 13 states to raise the minimum wage, various increases in some cities across the country, and news that an executive order may soon mandate an increase on federal contracts, means small business owners will face yet another challenge to build, sustain and grow their business in a difficult economic environment.  

If the federal minimum wage increases, 31 states that do not have a higher minimum wage would be mandated to a new federal standard. Right now, the Congressional wage bill is seeking $10.10 as the federal minimum. In an election year, expect to hear a great deal more on the subject. Small business owners can take steps to mitigate the impact.

Whether you’re in favor or against minimum wage hikes, few would argue that small business owners, in comparison to large corporations, often face greater challenges to absorb increased costs to run their businesses. Margins, pricing, cash flow and credit access already loom in the background for small business owners. As a result, increased regulatory pressures may place a disproportionate burden on these businesses.

According to the National Federation of Independent Businesses (NFIB), the small-business sector has historically created two-thirds of net new private jobs in the U.S. economy, however, this sector has been slow to recover in recent months due, in part, to a series of government policies. For instance, higher taxes, increases to health care costs, more costly regulations, and now the potential minimum wage increase impact small businesses ability to recover and grow.

Historically, economists have been divided on the impact of raising the minimum wage on businesses, and consequently on the minimum wage job market. A recent University of Chicago poll of economists found that it will be much more difficult for people to find these jobs, suggesting a reduction in employee hiring or hours. On the other hand, consumer spending and employee retention efforts may positively impact small businesses and minimum-wage employees.

In the end, the full impact to small business owners remains to be seen within the constraints of our new regulatory environment. However, similar to other challenges, it’s all in how you prepare. With this in mind, I recommend the following six steps to prepare for potential negative impact.

  1. Understand profit margins, projections and business requirements to ensure profitability.
  2. Determine permanent hiring vs. contracting decisions for staffing needs.
  3. Make good hiring decisions — mistakes can be costly because training/onboarding new employees is a considerable investment.
  4. Invest in employees — turnover decreases productivity and increases business costs.
  5. Be sure to employ time and cost-saving tools to standardize back office tasks. Consider outsourcing to easy affordable services like SurePayroll that allow you to focus on growing business not administrative functions.
  6. Research competition and adjust pricing accordingly.

But of course, there may be more. So, tell us: How has the minimum wage increase affected your business?