If this does affect your operation, will it cause you to attempt price increases or will you eat the costs?
Also, if you were already paying people higher than minimum, and now minimum is $1 or more higher than it used to be, are these people expecting another increase to keep them ahead of the curve?
We are trying to figure out what to do. We are in Missouri and the minimum wage went to $6.50/hr. When we increase the wages for those who were under that, will everyone who was already making that expect a raise too, like you said? Also, our delivery drivers were already making slightly above minimum wage, but do we have to increase their wages to at least minimum wage? We are thinking no, because they make tips and get delivery fees, and their hourly pay combined with tips and delivery fees will put them above minimum wage.
But, we will probably have to raise prices eventually, as much as we hate to. Hopefully the customers will understand, although I don’t think everyone understood how increasing the minimum wage would affect small businesses. Hopefully it all works out for everyone involved.
The State of Washington’s minimum wage goes up each and every January 1…We are currently at $7.63 and will go up to $7.93 in a month and a half…It’s a sad, sad situation for everyone. I figured with the amount of hours of labor, the next increase will cost around $15,000. Every year we try to raise our prices just enough to cover the added expense…the sad part is–the increased prices and costs are not market driven…one mile a way in Idaho, the minimum wage is still $5.15.
Yup, life is interesting!!
John
It is too bad because this affects all of us to a greater or lesser degree. The funny thing is it really does not help out the people making minimum wage really either. If minimum wage goes up so does the cost of every single thing, so basically it is back to the same old status quo. I guess the main reason it is done is because some politician gets to say “look you are now making more because of good ol’ me!”
well don’t forget too… the more you make the more taxes you pay. Oh yeah … the more you make the more you spend, the more taxes you pay.
we’re in nevada and we’re getting hit with a $1 increase in minimum starting jan. as i type this, i’m getting ready to send the new menus out to print with a price increase included.
there are a few caveats to the raise passed in nevada concerning whether you have to pay the higher minimum during when the emplyee is considered in training (up to 90 days) and the higher minimum does not apply to workers under the age of 18… odd
Some numbers I came up with:
If your store averages $8,000 per week and you run 23% labor…
5% pays another manager @ $400/week
18% pays crew making $5.15/hr. ($1440 or 279.61 hours)
$8,000 divided by $15 ticket average = 533.33 orders per week.
In order to run the same numbers when minimum wage moves up a dollar to $6.15:
279.61 hours x $6.15/hr = $1719.60
Managers salary = $400
Total = $2119.60
To run the same 23% labor your net sales would have to be at $9215.65 per week. Keeping the same 533.33 orders per week you would have to improve your average ticket to $17.28, or about $2.28 per order.
In conclusion, just 'cause minimum wage goes up a dollar doesn’t mean your prices should go up a dollar. They’ll have to go up higher than that. This is just an observation. Hope this helps. -J_r0kk
I can imagine that within several months in these states, including here in Ohio, that inflation will start running a bit higher than the national average.
Every year as minimum wage is forced to increase we will see prices across the board go up as well. We will be in the same boat as before. It will only hamper growth and new job creation and I will have to demand more from my employees. 99% of all my employees are already above the new minimum wage, but it isn’t fair to the guys who worked there way from $5.15 to $7.50 to have the new guys come in at $6.85. So in order to keep everyone happy I will be forced to give an substantial across the board raise or risk losing employees. It will be impossible to eat the increase in labor, I will have to increase my prices and cut back on non-essentials.
The first place I expect to see jobs cut are servers, why not eliminate a server and give the remaining servers a slightly larger area to deal with?
Minimum wage was created as a “starting wage” not a “living wage”. Even at 6.85 there is no way you can support a family on that.
The funny thing is as the increased wage leads to higher inflation, the minimum wage will increase faster because its tied to inflation.
J-rokk, just a small observation in the thought process used for this formula. To keep the profit at the same dollar amount, you would only need to increase sales to $8279.60 or $15.53 per order for the 533.33 orders. This is assuming all other costs remain the same.
To keep the profit at the same dollar amount, you would only need to increase sales to $8279.60 or $15.53 per order for the 533.33 orders.
I wasn’t talking about profit. I was talking about Labor %. In order to keep the same Labor % working the crew the same amount of hours you would have to increase your avg. ticket to $17.28 per order.
Formula:
Labor $ divided by Net Sales as a percent
Actual:
$2119.60 divided by $9215.65 = 23.0% Labor
Here’s the problem. You have Billy and Timmy working for you. Billy is good, shows up on time, works when he’s there, doesn’t try to “run the clock up”, cleans up and goes home. Billy is a model employee. If you only had a staff of Billys, you’d be in profit-city. Timmy is your “average” employee. He shows up on time, works when someone’s watching, doesn’t concentrate on speed, efficiency, customer service, etc. But he’s got that one thing you desperately need – a warm body. Timmy’s nobody’s fool, he knows there are 20 other places that would pay him minimum wage, so he’s not overly motivated.
Timmy makes $5.25, Billy makes $6.25. Billy knows he makes more than the other guys because he earns it. New minimum wage rolls out, and you’re paying both guys $6.50. Where is Billy’s motivation to be better than Timmy?
State-mandated union is pretty much what minimum wage does for you. You can either pay Billy more or someone else will. You also know that 2 Billys will do more than 3 Timmys. 3 Timmys is $19.50/hour. At $8/hour, Billy’s still a steal.
Snowman describes the problem perfectly.
I have drivers at 2 levels of pay - one for the people who just drive and basically do nothing else, another for the ones who help on the phones, at the front counter, on the makeline, etc.
The min wage change is going to be higher than either group. The difference at the time is 85 cents. Min wage is going up $1 in my state.
So I keep the pay pay difference of 85 cents? It would only make sense since I think they are worth 85 cents more now, why not then? It’s almost like being forced to give everyone a $1 raise - even if they were not making min wage.
Bad all around if you ask me.
You hit the nail on the head. High minimum wage won’t bother me. What will hurt me is now the floor has been raised. If minimum goes up a buck fifty, every employee and I mean every one of them will expect a buck fifty raise.
I’m all for raising minimum wage. But ONLY if you get rid of the Plus Tips loophole.
Washington State goes up every year? John, how do you live with this insanity especially if Idaho is only one mile away with a much lower minimum wage?
All of these minimum wage increases obviously put some pressure on all of us but, ultimately, it is the consumer who is going to pay. Business certainly cannot absorb these increases. The problem here though is our politicians. A good number of them have no clue about the economics and the rest could care less about how the increases effect business. Besides, as one poster has pointed out, the politicians just see more tax money coming in to the government coffers.
Hi Gary
The only way we’ve made it so far is by competing from the top…top quality products and services. We’ve left all the discounting to everyone else. Dominos left town and now delivers to washington from across the river at the lower minimum wage.
You all must remember, that to truly understand how issues such as minimum wage affects you is to leave out the money and imagine that we all barter for goods. If I can trade a pizza for a haircut, and I make 10 pizzas profit a day, and government comes in and makes me give one of those pizzas to employees in wages… I am left with just nine pizzas to barter with…just because I am left with just 9 pizzas doesn’t mean my barber will accept 9/10 of a pizza for my haircut. Microeconomics tells us that 2 companies selling the same goods in the same economic area, will in general have the same price for their goods, or the higher priced company will lose market share. In the real world there are always companies which exist that are on the margin…that is…they are not profitable and are unable to raise prices to help the problem… When forced with the issue of government mandated cost increases, these companies will close the doors.
John
John, you do realize I baited you. I knew you could not resist. But, you are, of course, as usual, right on. The politicians always thnk they can improve on free market mechanisms don’t they? Here in So Calif we start everybody at $8 because that is the level at which we begin to see employees who exhibit some interest and potential. And we tell them right up front that we would like to see them work up to higher levels of pay. This is what the market requires locally and we did not need to be coerced by poiticians to pay more than the current minimum.
What is going to be interesting is the effect of the new minimum wage increase of 75 cents an hour Jan 1. In talking with other operators in this area it appears they are all going to pass every cent of the labor increase on to the customer. No choices.
got another book for you John, Flags of Our Fathers, have you read it yet?
Sort of an aside here, but since they’re crossing state lines to deliver pizza, would they not be engaged in interstate commerce, thus requiring their drivers to be DOT licensed and inspected and bringing the wrath of our almightly uncle Sam down upon them? Might be one way to help you level the playing field.
I was wondering the kind of the same thing. Once the driver is inside of Washington, aren’t they working IN Washington? Besides what Mike said, it seems like WA’s minimum wage would apply as well.
Actually guys…while Domino’s moved across the river to cut costs, they left me the huge advantage of offering better service (since they have way more ground to cover now). So, while I could always kick their butt with quality, now I have them with superior delivery times also…gotta use every advantage given to you!!!
John