Have a question about a small business topic? Let our resident expert Chris Griffiths take a run at it. E-mail your questions to smallbusiness@globeandmail.com. Confidentiality ensured.
There has been a lot of talk here and south of the border about increasing minimum wage.
The Ontario government has already announced a 7.3-per-cent boost, to $11 an hour from $10.25, effective June 1.
There is much debate about the impact this will have on small businesses and their employees. Clearly, a higher income for workers helps them and the economy, but surprisingly, I haven't heard a lot of backlash from small-business owners.
Many entrepreneurs understand that an adjustment is overdue, and while no one wants their business expenses to rise, they regularly need to deal with higher costs in other parts of their businesses, such as electricity, fuel, raw materials and inflationary impacts.
I hear a lot of economists brush off the broader impact of a minimum-wage hike on small businesses because many of them already pay a premium rate. So, if they are already compensating staff above $11 an hour, there is no impact.
I disagree. In my experience, when the minimum wage goes up, the bar needs to be raised for many other employees, even though they may already be paid above the new premium.
Imagine you have a staffer who started at $10.25 an hour and after a length of time with good performance, that person has been given a raise to $11 an hour. Then the minimum wage rises to $11 an hour and this employee is suddenly earning the equivalent of a new hire with no experience and no track record.
That isn't going to sit well with longer-term employees, nor should it. They will look at their value as being a 75-cent premium over a new hire and they will expect that increase as well.
When I have been faced with this situation in the past, I have executed a pay increase for all hourly staff to adjust their "premium" over minimum wage.
That said, the further you get from the minimum wage, the less impact the adjustment is or needs to me. When you get to, say, $20 an hour or higher, the minimum wage was likely never a hiring factor – at those levels, you are paying based on an existing skill and market value in order to stay competitive with businesses that require staff with similar skill sets.
Some businesses will caution that, as their payrolls rise, so will their prices, and the next thing you know, there will be corresponding inflation requiring even higher wages and so on and so on. History shows that is rarely the case.
What's more important is that staffers don't fall behind in their abilities to provide for themselves – that whatever mild inflation we already have doesn't chip away at their disposable incomes. That's not good for any aspect of our economy or our society.
Our small businesses are worthless without a strong, well-managed and fairly compensated employee base. Entrepreneurs rely on their staff to leverage their ideas, their visions and their strategies into daily tasks that push them to their goals.
We should not begrudge employees for wanting to achieve more financially. Those who see compensation as unfair, but who are unable to do anything about it, will cost businesses more in the long run due to poor morale and productivity.
A rise in the minimum wage is not bestowed upon businesses selectively, it is applied to all business equally. So your local competitors will be adapting to the same challenge.
When it comes to competitive issues, stepping up to the new minimum wage is an easy one. Get it done, treat employees like you would want to be treated, and get on with building a great small business.
Chris Griffiths is the Toronto-based director of fine tune consulting, a boutique management consulting practice. Over the past 20 years, he has started or acquired and exited seven businesses.
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