Four important considerations before your business raises the minimum wage

Minimum wage considerations

If there’s one thing that has gained further momentum in the opening days of 2016, it’s the minimum wage debate. Fourteen US states and several cities are progressing with their own increases, with most already taking effect from the first day of this year.

Some argue that the hikes are well overdue, in the quest to combat poverty. The federal minimum wage is more than more than 25 percent below its peak in 1968, and a hike of $12 by 2020 would lift wages for 35 million American workers. On the other hand, opponents raise concerns about the potential impact on employment and company profits – and that the increases will inadvertently lead to job cuts that affect those the reform is trying to support. Naysayers point to Seattle, which apparently has incurred the most job losses in the restaurant industry since the Great Recession, thanks primarily to minimum wage increases.

Whatever side of the fence you’re on, there are reams of data to support either side of the debate. What’s clear, however, is that when it comes to enacting minimum wage increases, there’s a lot that needs to be considered well ahead of any changes – including aspects such as employee morale, productivity, customer satisfaction and business growth.

Before you increase wages or decide to cut employee’s hours (or staff numbers altogether) – have you considered these four factors?

1. Match employees to the right tasks. Rather than axe the number of staff, look first at how people are working. Are there highly manual and inefficient tasks that could be automated? For example, does payroll need to manually export expenses submitted from one system to then calculate employee reimbursements? Or is human resources wasting time scrutinizing spreadsheets showing what projects people work on to rationalize hiring decisions, rather than allocating more hours to drive strategies in hiring, training and retention?

2. Identify the right pool of talent and skills for the business. It’s increasingly rarer to have all employees completely office-bound – many businesses today have a highly diversified workforce that includes some mixture of part-time and full-time employees, remote workers and independent contractors. It’s estimated that 45 million people, or more than one in five US adults, are part of the rising “on-demand” economy – working on a contingent basis in the digital marketplace. Additionally, trimming your headcount due to concerns about costs in the short term could hurt you in the long run – particularly if reducing hours and staff impacts employee morale. Think about the time and costs that come from not only interviewing, hiring and training new staff. For entry-level employees it costs between 30-50 percent of their annual salaries to replace them, while for high-level or highly specialized employees the estimate is closer to 400 percent.

3. Scrutinize your processes and operating expenses. Besides employee wages and salaries, are there other inefficiencies or areas in the business where you could be losing revenue? For example, in the professional services industry, one of the primary sources of lost revenue is inaccurate hours in timesheets, missing receipts from billable expenses and inaccurate billing. After implementing Replicon’s professional services management solution, Xoomworks was able to increase the accuracy of its data and improve invoice turnaround times by 30 to 40 percent. Is this information being captured in a timely fashion to make sure that money isn’t being left on the table?

4. Invest to grow. This sounds counterintuitive when your business is looking to manage its costs, but as the pace of technology innovation continues at breakneck speed, investing in the right technologies to minimize tedious administrative tasks and support long-term productivity and profitability goals makes sense. Replicon’s combination of client billing and time and attendance solutions helped Logic Healthcare reduce its accounting administrative overheads by more than 75 percent, increase accuracy on projects and billing by more than 25 percent, and improved productivity for its consultants who could manage their time and expenses on the go.

Sure, the kneejerk reaction to minimum wage raises could be to reduce staff hours or headcount. However, when you think about all the other factors that could be impacted with this decision, the answer is not as straightforward as it seems. Clarity on business operations and costs, employees skills and productivity will maximize your insights into how you address the minimum wage debate.

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Lisette Paras
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