On October 1, 2017 Alberta saw the second of three increases to the minimum wage, bringing it to $13.60 per hour. In 2016, the minimum wage was increased $1.00 to $12.20 per hour. At that time, many businesses were predicting significant harm to their ability to stay in business because of the increase in payroll costs. We certainly did see small businesses shut down when their profit margin became too small to justify being in business. Many businesses continue to indicate that they are struggling in today’s economy and are bracing for the second stage increase toward 2018’s $15.00 per hour minimum wage.

So how does a small business survive (and maybe even thrive!) and continue to employ minimum wage workers while trying to hold onto a reasonable profit margin?

Some employers have selected the option of reducing the number of overall staff. Laying off employees is never easy, but it may be a viable option for survival of the business. Assessing the total number of employees and duties to ensure an efficient level of staffing is a requirement to ensure you are retaining your best employees and maximizing the productivity of your people. The consequences of this however, may be that the work becomes more taxing on the remaining staff as businesses try to do more with less. They may also have issues resulting from limited or no coverage for sick or injured employees. All of which may impact customer service, in addition to the health and wellness of their employees. It may also require additional hours on the part of the business owner to be present at the business, which may mean they are spending less time focussing on growing the business.

Another method is the retention of the same number of workers but reduce the overall working hours to keep the payroll cost approximately equal to last years’ rate. This enables them to have more resources to cover for sick or absent employees and doesn’t require an increased presence by the owner. A business may also adjust the hours the business is open, perhaps only focusing on the busiest times of the day or week. Unfortunately, the workers will feel the pinch of less hours and a corresponding reduction in their earnings because of the fewer number of hours of work available. Ultimately, this could lead to increased turnover for the business as workers look for more consistent work hours.

Businesses are also passing on the burden of increased payroll to their customers by increasing the prices for their goods or services. There is however a limit to the price the consumer will pay for the goods or services and businesses risk pricing themselves out of the market. Many businesses have been forced to find other ways to cut costs in order to maintain profitability – whether it is finding new vendors or asking for price reductions, or eliminating less profitable business offerings. Some employers have had to reduce or eliminate health benefits and other perks provided to employees, such as bonuses or staff appreciation parties.

In some cases, employers are choosing to hire more mature workers looking for minimum wage positions over student applicants. They see those workers as more stable and committed for a longer term, thereby potentially reducing turnover and recruitment costs. This ultimately may force students to hold more student debt or parental debt due to lack of part time work.

Retail and restaurants are the two industries most affected by the increase in minimum wage. Both are dealing with the resulting issue of pay compression and the cost of maintaining equitable pay differentials among all employees and their supervisors and managers. Restaurants and other service industry businesses have implemented different strategies around gratuities and “tipping out” to help equalize the income differences between front and back of house positions. Some restaurants have taken to calculating hourly pay for their workers based on the gratuities earned so that workers can really understand their true hourly wage – before and after tipping out. Restaurants have been reluctant to roll the gratuities into the payroll due to the corresponding tax implications for servers who are currently responsible for declaring their own gratuity income to Revenue Canada.

Many businesses have been implementing a combination of the above changes to help protect their profitability. Its even more important for businesses to consider the effectiveness of their people practices, ensuring they focus on hiring and retaining the right employees; using thorough and structured recruitment practices; providing appropriate training to ensure employees are effective in their work; and immediately addressing performance issues. A shift in employers’ thoughts around part time hourly paid staff from “we will hire as need be and see how they do” to “we will invest some time to ensure that even our part time people are the best fit for the role and the company” and recognize the importance of a successful business relative to their input and effort. It takes a team to make a business work, and a focused one to make it truly successful.

Change is hard, and Alberta has really taken a lot of hits with the economy and potential upcoming tax changes to business. But, we should not hope to encourage one group to succeed at the demise or above another. We don’t want a living wage at the expense of small business, nor the success of small business owners at the expense of minimum wage workers. We want business to thrive and continue to drive our economy. If your payroll costs are a significant cost for your business, make sure you use strong HR practices to ensure that you are spending your money wisely.

If you are looking for support with managing hourly employees and minimum wage hikes, contact us to speak to one of our HR consultants!  

This article was co-authored by Alannah Turner and Leah Fochuk, both Senior Consultants with Salopek & Associates. It was originally featured in the Oct. 16 2017 issue of Canadian HR Reporter – The National Journal of Human Resources Management.