On January 1, 2017, 19 states and 21 jurisdictions across the US raised the required minimum wage for small businesses.
That's good news for the 4.3 million low-wage workers across the country, but bad news for small business owners — right?
Wrong. According to a recent independent survey, 1 in 3 business owners see some major benefits in the raise.*
So, how will the new minimum wage really affect business owners?Read on to find out. But first ...
Why Are Some States Raising Their Minimum Wage?
The federal minimum wage is intended to ensure a fair and livable wage for the nation's lowest paid workers. However, according to a 2016 report by the Economic Policy Institute, it hasn't really done that since 1968.
If the federal minimum wage had grown in conjunction with American productivity, today's workers would see more than $18 an hour — more than double the current federal standard.
The federal government hasn't raised the minimum wage since 2009, when it was increased to just $7.25. The decision to raise the federal standard in 2017 and beyond has yet to be made. President Donald Trump has changed his views on the issue several times throughout his presidential campaign. But for now, many states are taking minimum wage laws into their own hands.Source: Mentalfloss.com, “The Minimum Income It Takes to Live in Each State.” Published May 20, 2016.
Today, a majority 28 states have minimum wage rates higher than the federal standard — and more states are following suit. On January 1, 2017, 40 states and jurisdictions increased their minimum wages, including 11 jurisdictions in California, three in Washington state, and three in Iowa.
In states like Alaska and Missouri, the difference is nominal, so they'll see an increase of just 5 cents. Others, like Arizona and Washington, will see a leap of more than a dollar, which could make it harder for small businesses in these states to turn a profit, but easier for low-wage workers to make a living.
Additionally, it's important to note that, for many states, this 2017 increase is just the first step in a much bigger minimum wage plan. Arizona promises to boost their minimum wage by another $2 within the next three years, and California intends to raise their state minimum wage to a whopping $15 by 2022.
Illinois Proposes $15 Minimum Wage by 2022
In Illinois, state representative Will Guzzardi (D-Chicago) announced in March 2017 that he would like to see a statewide minimum wage of $15 by 2022 — matching California. The proposal cleared its first hurdle on April 5 by securing House committee approval, but confidence remains low. A recent survey by TSheets found that almost two-thirds of Illinoisans thought the bill would ultimately fail.1 Tellingly, even a third of its supporters expressed doubt. Many thought a lower rate of $12 an hour would be better and agreed that if it did succeed, small businesses should be given tax credits to help with the costs.
Find Out How Minimum Wages Are Changing Near You
Will The Rising Minimum Wage Hurt Small Business Owners?
Raising the minimum wage by just $1 an hour can cost small business owners tens of thousands of dollars in additional payroll costs each year — dipping into their bottom line and making it more difficult for them to turn a profit.
And they know it.
According to the same third-party survey of 500 small business owners across the country, 14 percent say they will be forced to let employees go if and when the minimum wage rises in their state.
Another 28 percent admit a higher minimum wage would restrict them from hiring additional help and therefore growing their business.
But almost 1 in 3 small business owners believe a boost to their employees' paychecks would be a good thing.
They believe increased wages would actually improve employee retention, or productivity, or both, which would lead to big wins for their bottom line.Source: Adapted from David Cooper, The federal minimum wage has been eroded by decades of inaction, Economic Policy Institute Snapshot, July 25, 2016
Why do some businesses support a higher minimum wage?
It is generally accepted that employees who are paid higher wages are happier at work, less financially stressed, and more likely to stick around for the long haul — cutting down on those pesky turnover and recruitment costs.
Additionally, employees who are paid more could actually rake in more sales and profits for the business than those who are paid less.
It's simple. When employees are paid a comfortable wage, they're less likely to leave the company. Long-term employees are experienced and invested employees. Seasoned employees will always provide a better service or do a better job than their rookie counterparts.Photo by Marco Verch
Take it from McDonald's CEO Steve Easterbrook, who recently raised the hourly rate to nearly $10 for McDonald's US employees. "The improvements we made to our compensation and benefits package to employees… have resulted in lower crew turnover and higher customer satisfaction scores," he said.
McDonald's sales have been on the rise since Easterbrook took the helm, and he credits higher wages to that success.
So, will the rising minimum wage hurt small business owners? The answer is both yes and no, but business owners who can afford it may discover that it's more help than hinderance.
1Methodology: TSheets commissioned Google Surveys to poll 500 people, aged 18+, in Illinois between March 21 and March 23, 2017. To obtain a copy of the data please email firstname.lastname@example.org. If you would like to cite these survey findings please attribute the research to TSheets with a link to https://www.tsheets.com/minimum-wage as the source.
*Methodology: TSheets commissioned Google Surveys to poll 500 business owners throughout the U.S between January 28 and January 29, 2017. The respondents are all members of Google's pre-qualified audience panel of business owners.Back to Resource Center