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March 2, 2017
Finance  |  4 min read

3 Tips to Stop Minimum Wage Hikes from Killing Business Profits

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Kathryn Hawkins

There are few things a business owner dreads more than processing payroll and watching thousands of dollars siphon out of her bank account in a single hit. (I speak from experience here.)

For most entrepreneurs, wages are the single biggest budget line item: A study by BizStats found that the costs of labor plus owner's compensation (cause, hey, you gotta eat too) for businesses operated by a sole proprietor varied from 6 percent for gas stations, all the way up to 76 percent for nursing homes, with most somewhere in the 25-30 percent range.

With minimum wage hikes in 21 states and 22 cities set to go into effect this year, payroll may take an even bigger chunk of change out of your business bank account, with minimum hourly rates jumping as high as $15.35 in SeaTac, Washington.

Worried about skyrocketing payroll expenses cannibalizing your profit margins? Never fear. Even with higher wages, there are plenty of ways to make your business budget last. Here’s what you can do:

  1. Embrace automation
    The AI revolution is coming—and it may already be set to cut your labor costs. Conduct an audit to see what you might be able to automate in your business so that you can cut staff time: If you run a restaurant, consider using mPOS technology to allow customers to place orders and check out on their own. If you have a grocery shop, is it time to invest in self-scan checkout counters? On the sales and marketing side, evaluate online solutions that can help you quickly communicate and follow up with prospects and customers. A robust sales and marketing automation solution can help both offline and online businesses to easily send out promotions and automate the marketing and sales process to guide prospects through the sales cycle—conserving hours of staff time so that you can focus your team on more strategic priorities that'll help you boost revenues, rather than sorting through email contacts and fumbling around with online order forms.

  2. Hourly versus full-time? Do the math.
    Many small businesses prefer to hire employees on an hourly basis since it gives you more flexibility to cut costs if you run into lulls. On the flip side, most employees would sacrifice a little extra cash for the security of a salaried job: They can plan around it and bring home a predictable income every week. The good news for you? As long as the employee earns at least $455 a week and meets certain criteria, he may be exempt from overtime pay. This full-time hire might work an average of 50 hours a week for $455, eliminating the need for two 25 hour-a-week employees at $11 each (NYC's new minimum wage). In this scenario, you come out $95 ahead every week, putting almost five grand back in your pocket each year. Good math, right?

  3. Match your staff size to your crowd size.
    If you run a brick-and-mortar shop, you probably have a mix of crazy-busy times and dead zones. But have you predictably worked out which is which, and staffed up or down accordingly? If not, now’s the time to start paying close attention: If your coffee shop is dead by 5 p.m., why are you still paying two baristas to talk politics for two more hours? Find out when your slow times are, and cut back your staffing, reduce hours altogether, or work on boosting profits with special “happy hour”-style promotions that’ll make the extra wages pay off.

Let’s face it: Your employees deserve to earn more, and you do, too. By being smart with your budgets and staffing more strategically, you can make sure it’s not an either-or proposition.

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