5 Ways Businesses Can Survive A Rising Minimum Wage
From the first full pay period commencing on or after 1 July 2019, the Fair Work Commission’s 3 per cent wage rate hike will come into effect for the national minimum wage and the minimum wages within Modern Awards. This increase is significantly smaller than the 6 per cent increase that the Australian Council of Trade Unions lobbied for, but still doubles the annual inflation rate, providing a modest boost in disposable income to low-income workers.
While unions welcomed the increase, businesses have voiced concerns. Business profits have risen much faster than wages in Australia overall, but mostly this is due to the strong performance of large enterprises in a few specific industries. Small and medium-sized enterprises who often rely on low-wage workers are likely to feel significant financial pressure, and some have indicated that they’ll be forced to lay off workers. In order to absorb the additional labour costs, businesses need to come up with strategies to minimise the impact, and angle for long-term growth to provide better conditions.
Will the wage hike affect my workers?
This will depend on your current wage rates and whether you employ workers on the National Minimum Wage or under the terms of any Modern Award or Enterprise Agreement.
The National Minimum Wage
The national minimum wage will be increased to $740.80 per week or $19.49 per hour. This constitutes an increase of $21.60 per week to the weekly rate or 56 cents per hour to the hourly rate.
Enterprise Agreement or Modern Award
If an Enterprise Agreement applies to an employee and the employee would otherwise be covered by a Modern Award, then the employee’s base rate of pay under the Enterprise Agreement must not be less than the base rate of pay that would be payable to the employee under the Modern Award.
If an Enterprise Agreement applies to an employee and the employee is not covered by a Modern Award, then the employee’s base rate of pay under the Enterprise Agreement must not be less than the national minimum wage.
No Enterprise Agreement or Modern Award
If no Enterprise Agreement or Modern Award applies to an employee, then the employee cannot be paid less than the national minimum wage provided above.
1. Managing working hours to keep costs manageable
Whilst the minimum wage is rising overall, the Fair Work Commission also recently introduced significant penalty rate cuts, which disproportionately affect low-income workers in the retail and hospitality industries. This provides some financial relief to businesses in these industries, but businesses can do more to limit excess labour costs as well.
Most businesses are already running efficiently, so laying off workers often is not the solution, and may even increase other workers to be compensated for working overtime. Instead, businesses can reduce costs by carefully rostering and scheduling workers to avoid overtime payments for excessive working or employing workers on a casual, fixed term or part-time basis.
2. Limit hours that need to be paid at penalty rates
Many Modern Awards and Enterprise Agreements provide workers with additional penalties for working over the weekend, working late, starting early, working overnight or not getting the appropriate rest breaks between shifts (to name only a few). Businesses can reduce costs by limiting work as much as possible during these times that attract extra loadings. By carefully managing labour costs in this manner, businesses should be able to offset a 1.5 per cent increase in labour cost over inflation in the short term.
3. Plan for long-term viability
While reducing work hours, the times that work is conducted and preventing overtime can affect your business’ bottom line, businesses need to go beyond HR to solve the underlying growth problem that’s holding them back from paying higher wages in the first place.
According to some economists, as well as politicians advocating for wage increases, a higher minimum wage should translate to increased consumer spending, and help to drive growth. For now, it’s unclear whether this will work, since low-income earners may instead need to use any additional income for essential purchases like groceries, rent, and utility costs. Businesses need to develop and pursue their own strategies to drive demand for their products.
4. Create a Culture of Innovation
It’s a mistake to treat Australia’s current economic situation as one of austerity, where businesses need to tighten their belts to wait it out. In both good and bad times, a successful business owner always innovates. Innovation can range from reviewing a company’s operational processes to rolling out a new product or service. Those businesses who best seize the opportunities created by harsh conditions will come out strongest in the end. Businesses that find ways to improve their productivity and profitability will be able to a point where wages can rise naturally.
5. Say Goodbye to Manual Processes
Because productivity is so important, it’s worth taking a deeper dive into the way work gets done at your company. Too many mid-market companies are mired in manual processes that needlessly complicate their day-to-day operations. The hidden costs of paper-based and manual recordkeeping can really add up. Now’s the time to look under the hood. What activities do your employees do, day after day, that could be automated? If those activities were automated, you might be pleasantly surprised at how much extra time they have to pursue more productive projects.
The bottom line.
Business owners face challenges every day, and the minimum wage hike is just one of many. If you think strategically about how to get in front of the problem, you can use this moment as an opportunity to fine-tune your business so that your company is stronger and better positioned than before.
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