After every election, businesses await changes as new lawmakers aspire to fulfill campaign promises. The latest legislative trend sweeping our nation is minimum wage increases in many states. Leave the pundits to debate whether it will revitalize or doom the economy. As a business leader, your job is to understand the impact of a minimum wage increase so your company can develop a plan.
Know the facts
While we work with businesses across many states, this post will focus on Illinois. In February, Governor Pritzker signed a bill to raise Illinois minimum wage rate to $15 per hour by 2025. For businesses located here, there will be a gradual increase to minimum wage over six years. Employers in Chicago or Cook County have already seen increases.
$8.25/hour Employees ages 18 and over in Illinois
$12.00/hour Employees ages 18 and over in Chicago (increases to $13/hour on July 1, 2019)
$11.00/hour Employees ages 18 and over in Cook County
Wage increase schedule for Illinois
$9.25/hour January 1, 2020
$10.00/hour July 1, 2020
$11.00/hour January 1, 2021
$12.00/hour January 1, 2022
$13.00/hour January 1, 2023
$14.00/hour January 1, 2024
$15.00/hour January 1, 2025
To offset some of the out-of-pocket costs of the increase, the new law includes a tax credit for companies with 50 or fewer employees. They can claim a tax credit for up to 25 percent of the actual cost of the wage increase to their business in 2020. The tax credit amount reduces annually with the wage increases and eventually ends at 5 percent in 2025; extended to 2027 for employers with five or fewer employees.
Prepare for change
With concerns running high, guard against bandwagon solutions. Before contemplating layoffs, reducing hours, slashing benefits or leaving Illinois, research all your options.
Calculate labor costs – Start by determining the incremental labor cost by year assuming business remains equal. Look at alternative scenarios such as business increasing using current growth rate or business decreasing. This arms you with an estimated best- and worst-case scenario.
Competitive assessment – Review prices against your competition. Increasing them may not cause customers to defect if you’re already priced below market rates. If your prices are comparable, your competitors may be forced to increase prices depending on their labor costs. Are valuable add-ons built into your price while other companies charge extra? Every pricing structure is slightly different so make sure you’re comparing apples to apples.
Communicate with customers – Don’t underestimate customer compassion if you share your commitment to providing gainful employment. This will only work if it’s authentic to your company.
Hire and retain the right employees – Finding and training new employees costs a lot of money especially in the currently tight labor market. By retaining great employees that fit with your company culture, you are actually saving money. Review your onboarding, training and professional development programs to make sure you’re engaging and sustaining employees for the long-term. Survey employees to uncover potential enhancements that could improve retention.
Maximize efficiencies, assess opportunities – You don’t have to figure this out alone. Leverage your greatest resource: your employees! Create a roundtable group to brainstorm unique solutions to drive your business to the next level harnessing talent and technology.
Outsource strategically – Consider partnering with outside professionals to handle certain functions. This can actually free up time to grow your business and save money. For instance, small- to mid-sized businesses will save a minimum of 21% outsourcing HR to a professional employer organization (PEO). This savings can help offset a labor cost increase.
Regardless of political affiliation, stay informed about all federal, state and local priorities so your business is prepared. The minimum wage movement isn’t going away. With the growing number of bills being signed into law, employers should immediately develop a strategic plan to deal with this overhead increase.
As a top CPEO in Illinois (certified professional employer organization), MidwestHR has been proactively advising and managing many facets of HR for companies for over 20 years. Time and again, we meet leaders who didn’t realize the amount of time and energy they dedicated to HR until they partnered with us. Tracking down answers to HR questions is important but not at the expense of strategic growth initiatives. We answer each of those employee questions plus recommend best practices tailored to your business. We have the experience needed to help you overcome HR hurdles. Whether your business is in Illinois or other states, give us a call at 630-836-3000 to learn about how outsourcing HR can help.