This article was originally published on the WorkForce blog.
If your payroll increases, don’t raise your prices or fire your hourly employees. Instead, get productive and draw the most out of your workforce. Here’s how…
Articles about the economics of minimum wage increases have been written a thousand time over, by countless political pundits and reporters in Britain, in Germany, and of course, in the United States. As it turns out, the economics field has been debating the large-scale impact of mandatory minimum wage hikes for years—and the lack of consensus has proven exhausting.
“I get sick to my stomach,” said Dan Hamermesh, an economist, in an interview with NPR about the ceaseless, polarizing debate. “It just keeps on going on, so I’m bored and annoyed.”
An economist might be over it, but if you’re an employer of hourly workers…wage increases affect your business. For example, whether you personally support or oppose the Fight for $15, the results have been in since 2015: cities and states across the U.S. are committed to a hike.
(Also, heads up: after December 1, 2016, any hourly employee earning less than $47,476 a year must be paid time-and-a-half for each overtime hour they work—but that’s a topic for another article.)
What, then, are the consequences of these laws? More specifically, how will employers cover the extra money they’re being mandated to spend on payroll? That’s what this article is about.
Let’s look at several key options: the good, bad, and the ugly…
1. The Bad: Raise prices.
If operating costs go up, businesses can choose to pass them onto the consumer.
Now, although it was widely speculated that this would happen in Seattle—where the minimum wage was raised to $11 an hour back in April, 2015—it didn’t. In fact, the prices barely budged.
Unfortunately, the wage increase manifested itself in a different way: it caused Seattle’s jobless rate to climb more than a percentage point in the first 10 months following the city-wide raise.
2. The Ugly: Fire people.
“If you raise the minimum wage,” said Bill Gates in a 2014 interview, “you’re encouraging labor substitution, and you’re going to go buy machines and automate things.” And that’s precisely what many companies either have done already or are planning to do soon:
McDonalds, Wendy’s, Panera Bread, Whole Foods, and several big box stores have already implemented powerful forms of automation, including self-ordering kiosks and self-driving shopping carts designed to perform tasks that were once reserved for people.
But what if instead of automating human duties, we automated the processes that enable people to work smarter and more efficiently, to cover more ground in fewer steps?
How would that work?
Let’s find out…
“What if instead of automating human duties, we automated the processes that enable people to work smarter, more efficiently?”
3. The Good: Get productive.
Employers affected by minimum wage increases don’t have to balloon their prices or lay off loyal people to make themselves whole. Identifying opportunities that improve efficiency and productivity will allow businesses to maintain a strong value proposition, which will help them keep a competitive advantage in their space.
Before committing to any measures that could, ultimately, degrade your brand’s reputation and value, consider these proven strategies:
3a. Calculate and respect customer demand.
Every modern retail store in the world collects data. Traffic data; point-of-sale data; an array of metrics that indicate when people are shopping and how much they’re spending in a particular store.
Retailers that analyze these numbers are rewarded with a customer demand synopsis, which can then be used to calculate a store’s necessary employee count per shift.
Knowing exactly how many associates you need at any given point is fundamental to keeping payroll costs low. If you want to protect your bottom line in the face of growing wages, start with customer demand forecasting.
3b. Enable cross-staffing.
In other words, get flexible with your employee roles and responsibilities. Let’s use Erica and Jay, two full-time hourly employees at a major hotel chain, as examples.
Jay and Erica work as a team, manning the front desk, accommodating customers over the phone and in-person. They’re constantly busy, except on weekdays from noon to about 2 PM, when there’s a lull in traffic. Instead of keeping the front desk overstaffed for 10-14 hours a week, the hotel manager began moving Jay to the gift shop or the restaurant during the downtime (depending on need) to get the most out of his billable hours.
3c. Offer shorter shifts at a premium.
This strategy is all about aligning employee worktime with required workload.
Imagine, for example, that the owner of Bubba Shrubs Landscaping Co. needs his team to only work 6 hours on Monday, and not the usual 8. Instead of paying each landscaper a full day’s wage at $15 per hour ($120/employee), the owner could offer to compensate those 6 hours at a premium rate of, say, $18 ($108/employee).
It’s a simple, yet effective compromise, one that drives flexibility and, typically, leaves both parties satisfied with their end of the bargain. That said, it does present challenges, especially for larger organizations attempting to scale the process—but automation software can make that easier.
Ready or not, the hikes are coming…
At the start of 2016, in the U.S. alone, fourteen states entered the New Year with a higher minimum wage—and all signs point to the fact that a higher federal minimum wage is imminent.
Moving forward, the most successful businesses will adopt a combination of creative strategies, matching their labor to customer demand while increasing employee flexibility for a seamless transition into modern hourly wage dynamics.