Ontario Business Owners – are you ready for disruption? If not, you could be facing a knockout.
Ontario is now less than 6 months away from unleashing one of the largest disruptors that many business owners will ever face – a substantial increase to the minimum wage.
For many business owners, particularly those in lower-wage industries (think retail, general services, non-trade blue collar, etc.) there is a big hit coming and you need to be prepared. If you didn’t already know the General Minimum Wage will be increasing from the current $11.40 to $14.00 on January 1, 2018 and then to $15.00 in 2019. This represents a 32% increase over the next 18 months.
Have you taken the time to figure out how this is going to impact your business? Have you strategized about how you are going to handle it? Failure to do so may lead to dire consequences including the loss of your business.
In case you think this is a case of crying wolf, let’s take a look at a couple of real-world examples:
For purposes of a simplified illustration, we’ll make the following assumptions:
Revenue = $2,000,000 per year and remains flat over the next 2 years
Non-labour expenses (all other expenses) increase 2% each year
In Example 1 below, the 2017 “Labour cost” = 40% of revenue. All other business costs = 50% of revenue leaving the owner with a 10% profit. In 2017 this will equal $200,000 pre-tax.
Moving forward to 2018 with flat sales and a 2% increase in non-labour costs together with Phase 1 of the minimum wage increase, the 10% profit has evaporated and the business has taken on a small loss. In 2019, this business owner is now losing almost $100,000.
Let’s look at another example with a business that now has a 60% labour cost:
Again, in 2017 they have a $200,000 bottom line but one year later that 10% profit is wiped out and you have almost a $100,000 loss. One year after that there is a $200,000 loss.
Now you may be thinking, “I have some employees working at minimum wage but many are being paid more than that. After all, I give my employees an increase every year”. That may be true. The reality is, every business owners impact will be different. But consider the following pay structure which is based on starting your employees at the current minimum wage and then providing a 5% annual increase:
With the effects of the minimum wage increase Jan 1, your new starting rate becomes $14.00 per hour. Your challenge is, all of the rates on the above pay structure are below the new minimum – you will need to increase everyone. And, do you think your employees with 2 years or 5 years tenure are going to be happy being paid the same amount as a new hire? You’ll need to make some further accommodation here too.
The minimum wage increase won’t affect every business but it will affect many businesses. As a business owner, you need to understand if it will impact your business and if so, to what degree.
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