This article was updated on June 12, 2018.
Many states have increased their minimum wage. In 2017, 18 states enacted new minimum wage laws that raised their minimum wage, reports the National Law Review. In 2018, the minimum wage increased again for 18 states and 20 cities, according to Fortune.
This is part of an overall national movement among labor activists to advocate for raising the minimum wage at the state and local level in the absence of an increase in the federal minimum wage (currently $7.25 and unchanged since 2009, according to the DOL). Several big cities like New York and San Francisco have passed laws that will phase in the minimum wage increases to $15 over a period of a few years. For finance leaders, an increase in the minimum wage can be a concern for their organization's bottom line — one argument against raising the minimum wage is that it would depress employment, because the higher cost of the minimum wage employees would exceed the value they bring to the organization.
However, it's important for finance leaders to consider a broader view of the opportunities presented by new minimum wage increases and adopt a more agile perspective on the value that minimum wage employees bring to their workforce, especially when considering alternative methods of completing the same work.
Here are a few ways finance leaders can prepare for changes in minimum wage laws by understanding the value of their lower-compensated employees.
See How Higher Wages Can Help the Bottom Line
Employee wages aren't just a cost — they're a necessary investment in your business's ongoing productivity. Organizations could discover that when wages go up at their lowest-paid positions, job vacancies may disappear as more workers could agree to take jobs for $10 or $12 an hour that they would have rejected for $8 an hour. Giving employees a bit of additional money can pay dividends for businesses by expanding the pool of workers. Businesses incur many hidden costs and missed opportunities due to vacant jobs and employee turnover. Paying higher wages can help to reduce these costs.
The trouble with being in a low-cost, low-wage industry is that by competing on price or by competing on who can pay the lowest wages, it becomes harder to invest in adding additional value to your products or delivering a premium service. As a result, your business ultimately becomes a replaceable commodity. Finance leaders need to ask themselves, what kind of business do they want to be in? One where the structural challenges of the industry make it impossible to pay a living wage to their employees? Or is the rise of the minimum wage an opportunity to change your business model away from a race-to-the-bottom commodity price, and in pursuit of bigger profit margins, which make it easier to be generous to your employees and your customers?
Automate Where Possible, and Strengthen the Human Element
Many low-wage industries are looking to automate more work that was previously done by humans. For example, fast food restaurants are testing new self-serve kiosks where customers can place their orders via touchscreen. It's inevitable that as new technologies come onto the market, finance leaders will need to evaluate the trade-off between investing in automation and paying higher wages. However, every business needs to capitalize on its human talent.
Work collaboratively with HR leadership and employees to reimagine job descriptions to find the essential tasks and services that require the human element of interpersonal connection and creativity. Good ideas and productivity solutions can come from all levels of the organization — proactively reach out and listen to the employees who are on the front lines dealing with customers each day.
Employees aren't just a "cost," they're an investment. Businesses should seek to find creative ways to work collaboratively with employees to boost productivity and reduce other costs, even when presented with new requirements for a higher minimum wage.