How to Survive a Minimum Wage Increase in 2020 (And Beyond)

Key Points for on How Your Organization Can Survive a Minimum Wage Increase:

  • At $7.25/hr, the federal minimum wage is nearly impossible to live on. Because of this, 24 states are raising their minimum wage rate above the federal standard.
  • Most employees can’t wait for a minimum wage increase, but small and medium-sized businesses may be worried about the added labor costs.
  • If you need to make budget changes, hire freelance workers or relax overtime rules instead of hiring a new full-time employee. You can also introduce tools and small incentives to increase employee productivity and engagement.

The federal minimum wage hasn’t changed since 2009. Despite inflation and a higher cost of living, the rate has remained at $7.25/hr. Now, more than 10 years later, employees are fighting harder than ever for an increase. In 2019, the House of Representatives even passed the Raise the Wage Act, which promised to raise the federal minimum wage to $15 by 2025. The Act was ultimately rejected by the Senate, but some states have raised their minimum wage above the federal line regardless.

On January 1, 2020, 20 states raised their minimum wage and 4 others are scheduled to make changes later this year. These changes vary by state: California’s 2020 minimum wage, for example, is $12/hr in organizations with 25 employees or less. It’s $13/hr in organizations with more than 26 employees. These rates will increase by one dollar each year, with an ending wage of $15/hr for everyone by 2023. Pennsylvania’s minimum wage, on the other hand, currently matches the federal minimum of $7.25/hr. They’re slated to increase the rate to $8/hr by July 2020, with the ultimate goal of reaching $9.50/hr by 2022.

Some states already pay more than the federal minimum wage and are not planning to make additional increases this year. Other states match the federal amount but are not making changes in 2020. To see your state’s 2020 minimum wage rate, you can use this interactive map.

Remember, if your state, local, or county minimum wage rate is higher than the federal minimum rate, you will have to pay the higher rate.

Why Raise the Minimum Wage?

A full-time employee who earns the federal minimum wage of $7.25/hr doesn’t make a living wage. With roughly 20% of these minimum wage workers living in poverty, their earnings are not enough to lift them above the poverty line.

If the federal minimum wage were raised to $15/hr by 2025, an estimated 33.5 million workers would benefit. This includes the 6.2 million workers currently living in poverty. A higher minimum wage can also increase employee engagement and increase retention rates. Employees may even feel more valued, boosting their performance, morale, and self-esteem.

While a higher minimum wage has great potential, it won’t solve every problem, at least not directly. Many employees will receive a financial boost, but the change could also lead to job losses, reduced hours, higher prices, and small business closures.

The results of a minimum wage increase are still unclear, but one thing is certain: minimum wage will continue to be a major topic of discussion. Whether your region is preparing for an increase or not, you can use these tips to navigate any large-scale financial change:

Calculate Its Impact On Your Finances

Before you worry about a minimum wage increase, first determine how much your organization will be affected. Calculate your revenues, profits, and expenses. You might learn that a higher minimum wage won’t affect you as much as you thought it would.

If the wage increase will have a major impact on your finances, you’ll at least have the concrete numbers needed to budget effectively.

Hire Contract & Freelance Workers Where Applicable

Your organization might need specific services like design or marketing. If you don’t need these services on a daily basis, opt for a freelance or contract worker instead of a full-time employee. You’ll get the work you need without the expense of a full-time employee on your payroll. You’ll also save on additional new-hire expenses, such as benefits.

Allow for Overtime

In a similar vein, you might relax your overtime rules to cut costs. Depending on your industry, it may be more cost-effective to pay workers overtime than to bring a new full-time employee on board. Calculate the relative costs for each option before making a decision.

Hire the Right Employees

Of course, there may be times when hiring a new employee is unavoidable. When this happens, make sure you hire the right person for the job. The last thing you want to do is spend time and money on another new employee a few months down the line.

To find the right fit, make sure the job description is updated. Are the job responsibilities and skill levels needed still relevant? Does its tone accurately reflect your organization’s culture? If not, edit the post before publishing it. If the post doesn’t match the open position or your company culture, you won’t attract the right candidates for the job and you could be looking for a replacement within months.

Offer Incentives to Employees Who Don’t Earn Minimum Wage

If minimum wage workers suddenly receive a pay raise, other employees may expect bonuses, too. When a minimum wage change goes into effect, be transparent with your employees. Explain to them that minimum-wage-earning employees are getting raises because you need to match the increased state, local, or county minimum wage. Also tell your employees if you’re going to make changes to account for the higher labor expenses. This way, they’ll know what to expect moving forward.

Non-minimum wage earning employees may feel less valued if their minimum-wage-earning counterparts suddenly receive a raise. If you can, introduce small incentives to encourage high work performance and reassure employees that you still value their work. These incentives can be as small as $10 gift cards – little touches can go a long way!

Increase Employee Productivity

Productive employees get more tasks done in less time. If you increase your employees’ productivity, you can manage costs effectively without making drastic changes to your labor force.

To do this, give your employees the tools and resources they need to do their best work. If possible, let employees work remotely and create their own flex schedules. Without the distractions of a workplace, 77% of workers are more productive at home.

If this isn’t possible, consider using software programs to automate manual processes and help employees save time. With project management programs, communication aids, and online learning tools, employees can streamline their tasks and grow their skills. They’ll become valuable assets and will have more time to devote to their actual work.

If you’re already imagining the headache a minimum wage increase will cause, consider using an integrated HRIS. SentricHR’s all-in-one solution handles Payroll, Timekeeping, and everything in between. For more information on how we can help you navigate a minimum wage increase, schedule a demo with one of our product experts today!

For more information about the minimum wage rates and exemptions in your specific location(s), contact your state’s Department of Labor.

This article should be used for informational purposes only. It should not be taken as legal advice. Contact your accountant or legal advisor to discuss specific circumstances and questions before you take any action.

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