The Best Way to Deal with Minimum Wage Increases

One month from today minimum wage increases from $12.20 to $13.60 and next year it will be $15 per hour.

This will have a detrimental effect on many businesses. Many businesses will suffer worse margins and less profit, here how to do the OPPOSITE:

Don’t increase prices

Your choice is the same as everyone else: less employees or less profit.  The only way to maintain your current margins is working with fewer people. In a restaurant example, if your food costs as a percentage of sales are already low vs. industry benchmarks, increasing your prices with respect to food costs would be bad for you.

Change payroll practices

We have worked with customers in various industries to prepare them for the minimum wage hike since late 2015: normalizing 5-hour shifts and eliminating people who work less than 50% (100% being 40 hours per week). Fewer people means considering appropriate times to do prep work (pre-portioning, mixing etc) to mitigate the busy times with fewer people (even if it is only 1 less person). Also, this means getting the fewer remaining staff – personable kitchen staff, for example, to help with guest service. A more radical/specialized change in restaurants is conveyor ovens.

5-hour shifts

I have been so impressed with the improvements our restaurant customers have made, effective Aug 1 our own office enjoys 5-hour shifts. Shifts under 5 hours, employees are not entitled to any breaks.  Breaks during the typical workday are not used to re-energize or restore attention. The end goal of efficiency is to remunerate employees as much as they did when they had 8 hour days, this will, in essence, give them a higher raise than the increase in minimum wage.

Now, most of our customers are no longer concerned about the minimum wage increase since it does not affect them anymore (they pay more than the minimum wage: they hire 2work them like 4 and pay them like 3. This is the same as paying someone an 8-hour wage for 5 hours of work). If you can give them an increase of paying them 8 hours at their “old rate” for 5 hours of work you could go as far as eliminating tipping.

For example, if an employee is currently earning minimum wage at $12.20/hour + tips, if you reduce their shift to 5 hours and reap the same benefits you could afford to pay them $18.30/hour and eliminate tipping. 

($12.20 x 7.5 hours = $91.50 / 5 hours = $18.30/ hour)

The check to make sure you are on the right track is if you pay someone $18.30 per hour, the employee should also “pay the company” at least $36.60 per hour (giving you $18.30/hour as their contribution to overhead). Profit per employee is an important metric SwissBooks will track for you.

I am confident that in the long run, this is better for Canada, making us a little more like Switzerland etc. where people have a career in every type of work. The work is done with pride, and this will only help your reputation and your business, and the quality of product and service across the board should increase to society’s benefit.