Business owners across the country are having to figure out how to pay their employees more while making sure that increasing minimum wages don't eat into profits and margins.
Since January 2014, 21 states and the District of Columbia have changed their minimum-wage laws, according to the Economic Policy Institute, often indexing them for inflation so they rise annually.
This January, 19 states saw their minimum wage limits rise between .5 cents and $1.95. On July 1, Washington D.C, Maryland and Oregon will also see increasing minimum wages, though the trend may slow somewhat under the Trump administration.
"Small business owners must know what changes are coming, plan ahead and review their budgets," said David Cameron, head of business banking at City National Bank. "They will have to adjust where they can, including possibly raising their prices, in order to absorb higher labor costs."
Craig Bloem, founder of freelogoservices.com, which develops software to help small businesses with branding, has about 21 minimum-wage staffers out of 50 total employees. While he has no complaints about paying his employees the new required wage, the increasing minimum wage is impacting his bottom line.
“We're a fast-growing company, but at the same time we can't have costs soar out of control," he said.
Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University, said the impact of increasing minimum wages can be drastic.
“A higher minimum wage definitely increases the cost of doing business, especially if a company's profit margin is very thin," she said. In some cases, when minimum wages rise other staff may need an increase as well. If a manager is being paid $15 and the minimum wage goes up to $15, then the manager will likely want a raise, too.
Conversely, owners concerned about getting labor costs under control might decide to reduce the salaries of higher-paid employees in order to keep increases flat, de Rugy said.
The increasing minimum wage could also result in layoffs or higher prices as some companies pass on expenses to their customers. Or a company may decide not to hire additional staff in the future.
However, companies shouldn't immediately slash budgets or raise prices, said Jennifer Martin, owner of Zest Business Consulting, a Los Angeles-based business advisory firm. If anything, climbing costs present an opportunity for companies to get creative.
Here are some strategies for employers facing increasing minimum wage laws:
1. Encourage Employees to Bring in New Business
And consider giving bonuses to those who come up with valid revenue-generating ideas.
“I treated everyone like a commission-based sales person and told them to bring business in," Martin said, recalling a time her previous business was experiencing a cash crunch.
2. Invest in Training
Rising staffing costs have caused tech entrepreneur Bloem to ask more of his employees. If he's going to pay people more, then he'd like them to be doing more work. By training his lower-paid, data entry employees to work directly with customers, he can ask them to handle more complex business issues.
“We're paying them more, but now they'll also be more educated and can make more decisions," he said. That likely means that he won't hire as many people in the future, since these employees will now be doing other work, but it also means he can keep the people he has.
3. Implement Automation
Bloem is also getting software to help do tasks more quickly. For instance, a computer program can report on a customer interaction in about 10 seconds, where it took an employee 10 minutes in the past. Automating the task frees his employees to work on high-level projects.
4. Start Planning Now
Every company will deal with this issue in a different way, but companies can't wait until the last minute to plan.
"Don't let this surprise you," said Martin. “Start planning for the possibilities. Keep your eyes open about what might happen in the future."
That's what Bloem is trying to do. He's working through these higher costs and he's always thinking of ways to pay people more without materially impacting his bottom line. He's also trying to find other ways to make his company attractive to workers, such as letting them work from home and offering flexible hours.
By doing that, he hopes that his staff will enjoy being at his business and want to help him make more money and succeed and that will, ultimately, help offset rising costs.
“We have a great team and great work environment," he said. “That makes people want to contribute."