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How Would A Higher Minimum Wage Affect Businesses?
August 14, 2015
In 1938, President Franklin Roosevelt established the Federal Minimum Wage at 25 cents per hour in an effort to guarantee a working wage rate across the nation.
Today, the Federal Standard for the Minimum Wage is $7.25, and this has been in effect since 2009. Raising the minimum floor has been a major topic recently, and there have been strong suggestions from labor and grass roots activists to implement a minimum wage as high as $15 dollars an hour.
While this sounds wonderful to the worker making that minimum salary, changing the rate from $7.25 to $15.00 an hour is a drastic change for business owners, and to survive they will have to be creative if such a change comes overnight.
For example, the minimum wage in Indiana is the federal standard of $7.25, while Illinois has a base wage of $8.25, and Washington D.C. currently has one of the highest minimum wage rates in the nation at $10.50.
If you apply the math, a current business owner in Indiana, with 10 full time employees at minimum wage, pays $150,800 in regular wages with no overtime, Social Security, insurance, etc. If this same business owner must pay a minimum wage of $15 per hour, their payroll will increase to $312,000 per year, with out the extras.
Assuming further that this business was cruising along at $500,000 in sales, and saw no increase in income with the wage hike, that business will lose $161,200 to the bottom line.
While some states will implement the $15 minimum wage in the next two years in phases, a crafty Seattle restaurant owner at Ivar’s Salmon House decided to start paying his employees $15 now, instead of waiting. How is he going to absorb the major hit to his bottom line? He simply raised his menu prices by 21 percent and eliminated tipping.
His customers don’t mind the increase because they no longer feel compelled to leave a tip, and his employees love their pay increase. Revenue has soared, and some customers still leave tips for great service.
Ironically, Ivar’s Salmon House opened in 1938, same year that the minimum wage was implemented.
Dave Ryan is the executive director of the Lakeshore Chamber of Commerce. The opinions expressed are his own. He can be reached at dryan@lakeshorechamber.com or (219) 931-1000.
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