On April 1st, Seattle implemented the biggest pay hike any major U.S. city has taken on. Minimum wage will gradually rise to $15 an hour in the Emerald City over the next decade. For small businesses grappling with the change, this is what you need to know:
- Small businesses will have to start paying at least $10 with a $1 credit for tips or health insurance.
- Small businesses will have 7 years to raise their wages to $15. The first five years will include adjustments for tips and healthcare costs.
- Future increases will be based on the cost of living.
But the bigger question here is how to adjust for the increased labor costs. You have several options, each with their own pros and cons.
Option 1: Raise prices
Some Seattle business have said that they plan to go this route, especially restaurants that say that they will instead no longer encourage tipping. But for businesses without tipped employees, the cost would be fully passed on to the customer.
Pros: No direct, immediate hit to bottom line, can keep operations the same.
Cons: Some or all of increase is passed on to the customer and could decrease business.
Option 2: Cut hours, layoff employees, or cut costs in some other part of budget
This would be a way for small businesses to absorb the wage increase cost themselves, but at the expense of employees and possibly operations. However, if you’ve got to preserve your bottom line and you don’t think you could raise your prices any more, it’s still an option.
Pros: No direct hit to bottom line.
Cons: Could cause employee retention issues as other staff members could get overburdened, could impact level of service given to customers and hurt business over time, could impact business operations.
Option 3: Absorb the cost
Finally, you could choose to take the hit to your bottom line. This is the route that some businesses in Seattle are choosing to take because they are anticipating a spike in demand along with more money in workers’ pockets.
Pros: Business operations stay the same, employees aren’t affected.
Cons: Cost could be too much for bottom line to withstand.
Navigating these uncharted waters is tricky because the long-term effect of the minimum wage increase is still so uncertain. Look at your budget, consider what your clientele expects price and service-wise, and talk to other Seattle business owners about how they’re coping. As more information on the effects of this policy change becomes available, you’ll be able to adjust your strategy accordingly and keep living your entrepreneurial dreams in the Emerald City.
About the Author - Jeff Reinstein in the CEO of Premier Business Centers. He has been with the company since 2002, and has assisted the company grow from 9 locations to over 70 during that time. Mr. Reinstein loves spending time with his family, along with spending time outdoors.