What I Really Think about Ontario's Minimum Wage Hike...
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There's been a lot of buzz in recent months in regards to Ontario's minimum wage hike that went from $11.60 per hour to $14 per hour. I know this has had a lot of minimum wage employees positively elated, but I really don't think it's a good thing. Let me explain why.
In theory this wage increase is a fabulous idea, but reality is a far different animal.
Here's a a scenario...
Let's assume my small business employs 10 people who work 50 weeks annually, 40 hours weekly, and make $11.40 an hour. I make $100,000 per year and take 60% as my take-home salary. Now, let's not forget to factor in benefits and taxes that are paid to the government. It's not a stretch to assume that the total cost of my business to employ my labour force has now gone up to approximately $60,000 per year. Whoa?! Suddenly, my salary is zero. What's my reaction?
Probably something like the following...
I am going to reduce my work force (aka let staff go) to maintain profit because I cannot pass along the increased costs to my customers and I want to maintain my $100,000 safety net. I am also worried that my suppliers might boost their prices in an effort to pass the cost of this minimum wage increase to me. Yikes!
Fact: The Bank of Canada is estimating that 60,000 jobs will be cut in Ontario due to the wage hike.
Now, that my labour force is smaller, I might have to invest more time into the businesses to maintain profit. I'm the owner. I already put an enormous amount of time in the company. I don't think this is humanly possible... can anyone say karoshi?
Are layoffs the only way? Maybe not. Okay, so let's say I want to keep my staff, then I'll have to revise the benefits I offer my employees. If I go in this direction then I'm taking a page out of Tim Horton's book who caught flack this year for cutting costs with unpaid breaks and eliminating group benefit plans. So, how does this better my employees again? I thought the wage hike was going to improve their lives not make it worse.
The above scenario also assumes that I have no supervisors or lower income salaried employees. If I did, I would logically have to adjust their wages upwards by 20% to be fair to them and ensure I keep my experienced staff happy. This would be an even greater hit to my bottom line than the 'simple' scenario I presented above.
However, before you dub me negative Nancy, I did find a silver lining. A strange by-product of all this is that I now may be able to hire some very skilled staff who previously would not have considered a minimum wage position due to their lifestyle commitments.
Wait a minute... doesn't this ultimately create a barrier of entry to our youth who are already struggling to enter the workforce? This might work out for my business in the short term, but this could prove detrimental to the greater good.
Fact: Ontario's youth unemployment rate is approx.10.9% right now
Look, I understand the importance of an equitable lifestyle and the motive of the minimum wage increase. However, as an accountant who's worked with businesses of all sizes for decades, I can't look at this through a narrow lens and I put on my business owner's hat. Small businesses in Ontario have had a tough time lately. They just got slammed by the Federal Government in the fall by a number of new taxes and I suspect more are coming soon. Economics 101 in university taught me that higher product prices, higher taxes, and higher unemployment usually leads to less spending by the consumer resulting in an economic contraction.
I don't see how any of this is good for small businesses in Ontario.
Protecting your bottom line,
Jaimie
Our opinion pieces are written by The MacPherson Group founder Jaimie MacPherson. With more than 25 years of accounting experience, Jaimie is passionate about helping entrepreneurs and sharing his expertise across a spectrum of industries. Need an accountant? Get in touch with our team today.