What to Do if You Can’t Afford Minimum Wage Increases

Federal minimum wage has remained stagnant since 2009; however, many local and state laws have pushed to increase minimum wage pay. In some metro areas like Los Angeles and San Francisco, the proposed rates are as high as $15 an hour.

Regardless of political stance, the monetary impact on businesses is indisputable.


If minimum wages increase even $.25, a business of 2,000 minimum wage employees would increase labor costs by $1,040,000 annually. For many businesses, an additional $1 million is impossible to scrape up. The effects of raising the minimum wage by $1 are even more drastic:




If you can’t afford the increases, what are your option? No HR or executive team wants to ponder this debacle, but the reality is, without having this difficult conversation, you’ll welcome further crisis and hardship.


What are the alternatives?


Ask your employees for suggestions

It might not always be top of mind to include employees in tough financial decisions, especially if their positions are at stake. But, you might be surprised by how creative and flexible your employees can be. You and your employees have the best insight to your company’s intricacies, which is required for creative fixes to monetary issues.


Your tunnel vision and drive to keep things afloat might also limit your ability to make rational and well thought out decisions. Your employees might be able to think outside of the box and help you achieve a goal you didn’t know was possible. This inclusiveness also may incentivize your employees to work harder for you.



Check your spending habits

Having a tight accounting system will be a blessing in times of financial crisis. Check your books; can you pinpoint an area where your spending is off-kilter? Like many businesses, it’s easy to spend too much on non-essentials or run into situations of miscalculated inventory. Take a deep look; what can you spare for more wiggle room to your wage allocation?



Adjust hours

Offer shorter weeks. Can you increase the amount of unpaid PTO employees can access? Can you get by if you shave a few hours off your employee’s timesheets? By reworking schedules, you might be able to give yourself a cushion.


68.3% of minimum wage workers are aged 16-34. For many of these employees, they have never had a job with schedule flexibility. You can position adjusted hours as an opportunity and an incentive for your crew. We all know how difficult it can be to sneak away for a doctor’s appointment or unexpected emergencies. Offering a more flexible schedule for unpaid time off, when possible, could be an incentive that keeps your employees around, and also offers room for you to naturally cut hours.



Offer unique perks that make payment more flexible

How can you incentivize your employees to stay on if you need to cut hours? One major pushback will come down to your employee’s dollar and cents. So, if they aren’t able to earn the same amount of wages they could in the past, at least give them access to their earned income whenever they would like.


Our company, DailyPay,  is easy (and non-disruptive) to your existing payroll process. It does, however, give your employees peace of mind. They don’t have to wait for their next paycheck to roll in, and they can access earned income for bills that are due when they need it. Flexibility with salary can reflect in flexibility accommodating your new needs as an employer. In trying times, it’s necessary to compromise.








Pass on increases to customers

If there is no way to reallocate funds, and your employees are unable to work with adjusted schedules, the next option is to pass the pricing difference to your customers. This is clearly an economic fear, something that can offset the benefit of increasing wages in the first place, but someone has to foot the bill. The additional money won’t appear out of thin air.


Clearly, the last solution isn’t the best, but consider the flipside. In a perfect world, you wouldn’t be stuck in this dilemma. And, if you are, the aforementioned steps would be a perfect solution. But, what if there is no escaping it? You need to take more drastic steps. You know the measures, but how can you soften the impact?


Laying employees off

Some fear passing the bill to customers will cause inflation and have a deeper impact on the economy. The alternative to passing the bill is lowering the number of employees you pay. This is never an ideal outcome, but if you can’t afford an increased cost, there isn’t much you can do to salvage these relationships.



If you do have to lay employees off, how should you do it?


Reassess the mix of skills you need today

Are you overdue for internal reconfiguring? Depending on how your organization is laid out, there may be room to shift job responsibility. What skills do you currently need to achieve your business goals? Are the roles in your company fit to achieve these, or are some of the positions and skillsets obsolete? By identifying positions within your organization that no longer hold value, your layoffs can be more strategic.  



Consider loyalty and engagement

The concept of “sharing the pain” means that, regardless of position, you aren’t safe. Look up and down the ladder; are some of your lower paid employees performing better than a salaried employee? Is there someone in the mid or senior range that you could let go, rather than an entry-level employee that shows dedication and hard work day in and day out? Be fair when assessing who is the best candidate for job security – show that you value productivity and loyalty above all.   



Soften the transition


If you have to let someone go, there are ways to lessen the hardship. HR departments can be proactive in developing ongoing financial wellness programs, training and development assistance or advice, resources for job placement. Get creative. Is there a hidden value you can exchange for laying an employee off? When things turn around, you might be able to approach valuable employees for rehire, another unpleasant business necessity.


It is difficult to make things work when a new financial burden is added to your plate. Applying extra effort to the way you handle this difficult situation incentivizes long-term loyalty and can help lessen future recruitment and retention issues.