New minimum wages were implemented across New York State at the turn of the new year. It’s part of the nationwide $15 minimum wage movement. In New York, wages are staged to increase to a minimum of $15. This is across all industries on an indexed schedule over four years. While an estimated 2.3 million New Yorkers will benefit from the new legislation, many small businesses are already feeling the effects and struggling to rebalance costs in the first year of the plan.
Small businesses in New York City, for example, are grappling with an increase to a minimum wage of $10.50 if they have fewer than 10 employees, or $11 if they have more. And those figures will jump to $12 and $13 respectively in 2018. Across the state, there are 18 minimum wage levels set for different workers in different regions.
A minimum wage increase leads to more expenses than just having to pay higher wages. Employers will have to pay higher payroll taxes. Also, they will potentially have to put more money into 401k matches or other benefit plans.
Some business owners reason that higher wages will lead to an increase in disposable income to spend at local establishments. Thus, potentially stimulating small business margins. Others argue that higher wages might force businesses to lay off staff. It will hamper their ability to turn a profit. Increased costs associated with higher wages may also push up prices or lead several businesses to find other ways to reallocate the costs to consumers.
Restaurants in NYC
The restaurant industry in New York city is particularly hard hit by the wage hikes. They’re subject to the highest increases. They’re also most susceptible to those who pay workers off the books and can undercut the competition — as well as price-sensitive consumers.
Many restaurant owners have added surcharges to balance these dynamics. For example, if someone is used to getting a chicken entrée for $12 and suddenly that increases to $14, they may trade down and order a cheaper sandwich instead or skip the beverage order. The bill will end up costing the same for the consumer, but the restaurant owner will still have to manage higher costs. In turn, that might lead to staff layoffs or even force certain establishments to close.
Ultimately, it’s too soon to tell whether the increase in minimum wages will have a net positive or net negative effect on the economy, or on the financial stability of workers and small businesses alike.
How to Deal
For now, small businesses can consider a few practical steps to prepare for the ongoing effects of the minimum wage increase:
- Cut back on your hours of operation or set overtime limits for your employees to reduce the wages you’re paying.
- You may need to reduce staff or find ways to automate certain parts of your operations.
- Look for ways to reduce any unnecessary costs. Make sure any investments you make are in areas with the greatest potential to generate a positive ROI.
- Keep a close eye on the competition to determine optimal pricing. If everyone around you is raising their prices and you’re struggling financially, you might have to raise yours too.
- Try to find new revenue streams or ways to expand your business that won’t require more staff. On the flip side, discontinue any services or products that aren’t generating enough return.