In the November 2020 election, Florida voters approved an initiative to increase the minimum wage incrementally to $15 per hour by 2026. Eight states (plus the District of Columbia) have passed legislation to raise the minimum wage in steps to $15, but Florida will be the first state to do so through a ballot measure.1 Considering the obvious appeal of bigger paychecks among working-class voters, the minimum wage could become a bigger issue in more places.
State labor laws vary widely, and there has been more pressure to raise the minimum wage in states with higher living costs. Twenty-nine states and the District of Columbia have minimum wages higher than the federal wage floor of $7.25, which hasn’t been adjusted since 2009.2 Some cities have enacted minimums that exceed state levels, and a few large employers have increased pay for entry-level employees nationwide, making it more expensive for smaller businesses to compete for workers.3
The Biden administration supports phasing in a $15 federal minimum wage, but a closely divided Congress could make that a difficult feat.4 Either way, many small businesses may face challenges as state-level wage increases take effect over the next few years.
Proponents of raising the minimum wage say it helps to reduce poverty and income inequality, boosts consumers’ buying power, and stimulates economic growth. Opponents believe that steep increases might cause jobs to be eliminated, especially in lower-wage areas. A 2021 report by the nonpartisan Congressional Budget Office estimated that raising the federal minimum wage to $15 would lift 0.9 million Americans out of poverty and cause 1.4 million job losses.5
Rising wage costs can be particularly hard on the balance sheets of small businesses, many of which are already struggling to stay above water during the pandemic. Increases in the minimum wage influence labor costs throughout a business, because more experienced employees generally expect to be compensated accordingly.
Preparing for pending wage increases may put you in a better position to absorb the cost and limit the impact on your workforce.
- Start by cutting extraneous expenses and looking closely at your energy consumption, surplus inventory, and service contracts.
- Consider reducing your hours (staying closed during slower times) or streamlining your operations in other ways.
- If you must raise prices, do so carefully by researching what competitors charge, and communicate openly with customers to manage their expectations.
- Before you reduce staff, focus on cross-training and retaining your most dependable employees, and hold off on hiring until you are sure you can afford the additional payroll costs.