2018-01-03 00:00:00 Accounting News English Learn how Ontario's minimum wage increases are likely to affect employers. Get tips for helping your clients weather these changes. https://d1bkf7psx818ah.cloudfront.net/wp-content/uploads/2018/01/10111050/Small-business-owner-talking-with-employee-about-ontario-minimum-wage-increase.jpg How Ontario’s Minimum Wage Increase Affects Employers

How Ontario’s Minimum Wage Increase Affects Employers

2 min read

Effective Jan. 1, 2018, Ontario’s minimum wage increases from $11.60 to $14 per hour. The following January, the rate increases to $15 per hour. If you have clients who pay their employees minimum wage or rates close to minimum wage, you need to help them figure out how the shift is going to affect them.

Calculating Increased Payroll Costs

In addition to higher wages, employers will also experience higher payroll costs due to increased Canada Pension Plan contributions and Employment Insurance premiums. As of 2018, the employer’s portion of CPP is 4.95%. For EI, employees pay 1.66% of wages under $51,700, and employers pay 1.4 times that amount. That makes the employer EI contributions 2.34%. The total amount for CPP and EI is 7.29%, and when you multiply that by the $3.60 increase per hour, that adds an extra 26 cents to each hour of minimum-wage labour. As a result, employers have to be prepared to pay an extra $3.86 per hour per worker.

To calculate how much that adds to your client’s payroll costs over a year, find out how many minimum-wage hours they paid last year and multiply that amount by $3.86. If you aren’t sure of last year’s numbers or if you’re worried about drastic changes, you can estimate for this year. Take an average week, estimate how many minimum wage workers your client has on the schedule, and add their hours together. For example, if there are six minimum-wage workers who each work 20 hours per week, that’s 120 hours, and the increase in minimum wage adds $463.20 to your client’s weekly budget.

Figuring Out How to Cover Increases

Once you help your clients estimate how much the increase in minimum wage will cost, you need to help them figure out how to cover the changes. If they can afford to take a reduction in profits, that’s the easiest option. Otherwise, you can explore alternative ways to free up some extra capital. Are there ways that your clients can reduce costs? In particular, they may be able to negotiate lower prices with vendors or buy in larger quantities to reduce prices. Can they cut hours? By running a tighter ship, your clients may be able to reduce hours for employees who aren’t needed for certain shifts, or they may be able to replace some workers with technology.

In some cases, your clients may notice an uptick in worker productivity, which may help to offset the increases in minimum wage. When employees make a living wage, they don’t have to worry as much about bills or feeding their family and they can focus more on their jobs.

Changing the Competitive Rate

When the minimum wage increases, employers may also need to think about increasing their other workers’ rates. For example, suppose one of your clients owns a restaurant and pays $16 an hour to attract and retain quality line cooks. When minimum wage is only $11.60, that is nearly a third more than the minimum rate – but when minimum wage increases to $15, that’s only $1 more. At that point, your client’s workers may be enticed to take on an easier job, even if it pays $1 less per hour. To stay competitive, your client may want to increase these rates for higher-paid workers or offer additional perks.

Helping your clients weather changes such as increases to minimum wage can be an important part of your job as an accountant. Your clients will appreciate your services if you can supply timely advice and tips.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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