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The Canadian businesses most affected by increasing minimum wages — $15 an hour in Alberta by October, $15 in Ontario by next January, with other provinces and territories doing their own upward nudging — are the ones with the most razor-thin profit margins.
Companies involved in food, beverage, hospitality and retail rely heavily on cheap labour, which will soon be as much as 29 per cent more expensive in the span of a couple of years.
Although the Bank of Canada estimates that approximately eight per cent of the workforce earns minimum wage, hikes affect about 15 per cent of workers, since other lower-wage employees will expect raises too.
Build labour costs into your long-term business plan
To make up the difference, some small businesses may be tempted to claw back employee compensation by cutting hours, breaks and benefits, or even resorting to layoffs. But many entrepreneurs are being more strategic about offsetting rising labour costs. After all, in adjusted dollars, current minimum wages across the country aren’t much higher than in the 1970s, according to Statistics Canada.
“We’ve always had this fervent [belief] that if our business wouldn’t allow us to pay our employees well, then it was a problem with our business model,” said Adam Pesce, co-owner of Reunion Island Coffee based in Oakville, Ontario. The coffee roaster and wholesaler has 80 employees, including staff at a Toronto coffeeshop. The company pays all its workers more than minimum wage, as well as providing benefits. Those at the lower end, making around $14, will get raises to make sure they’re earning more than minimum by 2019.
Pesce said Reunion Island builds rising labour costs into its long-term business plan. After two years of unchanging prices, the company recently boosted the cost of each item by 25 cents, an increase that will cover the wage hike but isn’t expected to hurt sales. After all, higher wages across the province will mean people have more to spend.
Living wages, loyal workforce
Price hikes are not the only solution. Anita Agrawal, CEO and designer at Best Bargains, a Toronto jewellery manufacturer and retailer, cut her print advertising budget in order to help pay her seven staff living wages, the lowest of which will rise to $17 an hour over the next year. Because staff turnover is low, Agrawal said she saves on training, which she estimates to be worth about six months’ salary per new hire. Having employees who are more deeply committed to the company also frees her up to leave the office confident staff will be able to solve problems in her absence. “They’re much more invested in their work,” she said.
Optimizing productivity without cutting staff
Research suggests that entrepreneurs take productivity more seriously when faced with rising labour costs. “Employers may respond to a minimum-wage increase by exerting greater managerial effort on productivity-enhancing activities, including the reorganization of work, setting higher performance standards or demanding greater work intensity,” states a 2013 report from the US-based Center for Economic and Policy Research.
Many retailers, especially, are turning to technology to reduce labour costs — the self-serve checkouts popping up across the country are not about making shopping more fun. But technology can also be used to make existing staff more productive.
Reunion Island recently bought new machines to improve the quality of their packaging and quickly discovered the new equipment saved time and made workers more efficient.
And for entrepreneurs with growth in mind, this kind of innovation means hiring more people, not fewer.