4 min read
Many states across the country have recently raised the minimum wage, and more changes are on the horizon.
Even an increase of $.75 an hour for 20 employees can mean an annual payroll increase of more than $20,000. Seemingly small increases can leave you wondering how to manage this new expense.
There are several steps you can take to adjust to recent state legislative changes or to prepare for upcoming payroll increases that are rolling out in the months ahead. (See the table below to determine if your business operates in one of the affected states.)
Once you determine if and how new minimum wage legislation will affect your business, it’s time to look at the big picture. New payroll costs may have implications for how you manage other expenses like utilities, inventory, supplies, and out-sourced work or third-party relationships.
By listing and evaluating existing or anticipated expenses you can create a comprehensive budget and determine what, if any, cuts or changes you’ll need to make.
Higher minimum wage rates also mean higher taxes. As you budget for your new payroll obligation, it’s important to account for increases in Social Security and Medicare expenses as well as taxes on things like disability and unemployment insurance.
Many business owners assume the way to address payroll increases is to make staffing changes or pass costs off to customers. But before you cut employee hours or raise prices, determine if there are any other cost-saving measures you can take.
For example, can you work with suppliers or vendors to negotiate better costs? Are you paying for services that you no longer need or are cheaper elsewhere? Of course, “cheaper” isn’t always better. Before making drastic cuts or going with the cheaper option, make sure it can accommodate your needs without jeopardizing the customer experience or operational efficiency.
Adjusting to new laws will become easier over time, but there may be periods where meeting payroll will be harder. Increases in wage rates may also affect your ability to make monthly or quarterly tax payments, maintain inventory or supply orders, or pay utility bills.
With bridge funding, you can access the working capital to manage immediate expenses and avoid the long-term effects of missed payments. For example, QuickBooks Capital offers loan amounts ranging from $6,000 to $100,000 with terms up to 12 months with no prepayment penalties.
Managing minimum wage increases can be easier if you’re knowledgeable about the situation in your state. If you do run into momentary gaps in cash flow, working capital funding can help.
According to the Fair Labor Standards Act (FLSA) of 2009, all employers are required to pay employees the federal minimum wage, which is $7.25. However, many states also have their own minimum wage laws.
More than twenty states and jurisdictions have already taken steps to adjust minimum wage in 2019, with some implementing immediate changes and others using a gradual approach that will take place over the next several years.
2 Retail and service businesses with less with an annual gross income less than $500,000 are not required to pay state minimum rates.
3 Minimum wage rates may vary based on location and number of employees. This is particularly true for employers in New York City, Long Island, and Westchester County.
4 Businesses with an annual gross income of $314,000 or less are only required to pay the federal minimum wage rate of $7.25.