In the November 2020 election, Florida voters approved an initiative to increase the minimum wage incrementally to $15 per hour by 2026. Eight states (plus the District of Columbia) have passed legislation to raise the minimum wage in steps to $15, but Florida is the first state to do so through a ballot measure.1
State labor laws vary widely but affected small businesses may face challenges as minimum wage increases take effect over the next few years.
Twenty-nine states and the District of Columbia have minimum wages higher than the federal wage floor of $7.25, which hasn’t been adjusted since 2009.2 Some cities have enacted minimums that exceed state levels. Moreover, a few large employers have increased pay for employees nationwide, making it more expensive for smaller businesses to compete for the same types of labor.3
Economic Impact
Proponents of raising the minimum wage say it helps reduce poverty and income inequality, boosts consumers’ buying power, and stimulates economic growth. Opponents believe that steep increases might cause jobs to be eliminated, especially in lower-wage areas. A 2021 report by the nonpartisan Congressional Budget Office estimated that raising the federal minimum wage to $15 would lift 0.9 million Americans out of poverty and cause 1.4 million job losses.4
Rising wage costs can be particularly hard on the balance sheets of small businesses, many of which are already struggling to stay above water during the pandemic. Increases in the minimum wage influence labor costs throughout a business, because more experienced employees generally expect to be compensated accordingly.
Survival Tips
Preparing for pending wage increases may put you in a better position to absorb the cost and limit the impact on your workforce.
- Start by cutting extraneous expenses and looking closely at your energy consumption, surplus inventory, and service contracts.
- Consider reducing your hours or streamlining your operations in other ways.
- If you must raise prices, do so carefully by researching what competitors charge, and communicate openly with customers to manage expectations.
- Before you reduce staff, focus on cross-training and retaining your most dependable employees, and hold off on hiring until you are sure you can afford the additional payroll costs.
If you have questions or need assistance, contact the Experts at Henssler Financial:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
1) The Wall Street Journal, November 27, 2020
2) U.S. Department of Labor, 2020
3) Bloomberg Businessweek, November 17, 2020
4) Congressional Budget Office, 2021
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