7 Things You Can Do About the Upcoming Payroll Explosion
Last week I wrote about why your payroll costs will be significantly increasing over the next few years. So if you buy into my premise and you are told that something is going to happen in the future, shouldn't you be taking the appropriate steps right now?
That's what the great leaders I know do. They don't complain or panic. They look ahead, they spot the trends and they take actions. They have a plan for how to grow while minimizing costs, and they have a strategy for their future challenges.
So what's your plan? There are many things you can do. To get started, I suggest these seven actions:
1. Explore all outsourcing opportunities.
The name of the game is getting stuff done without bringing on more permanent overhead. Right now, before things get out of hand, look at all the current and potential tasks being done in your office (bookkeeping, marketing, QA, website, etc) and think about what could be outsourced. Explore sites like Elance, Guru and Freelancer and test the waters with a few independent contractors. Have a few reliable outsiders in place to shoulder the extra work if and when it comes.
2. Prepare to go bronze.
Healthcare costs are projected to continue increasing, although no one seems to really know by how much. If you've got more than 50 full time equivalent employees, you'll be required, by law, to provide affordable healthcare to your full timers after Jan. 1, 2016. All the new health plans offer the same essential benefits, but the more expensive ones (i.e. Gold, Platinum) have lower deductibles for out of pocket costs. You can offer all the plans, but your legal minimum is to provide a Bronze Plan. If you're in this category then talk to your benefits advisor now about the pros and cons of just paying for the Bronze Plan and compare it to the plan you currently have. If you decide to do this, it's important to let your people know as soon as possible so they can financially prepare.
3. If you pay minimum wage, then start raising it.
It seems inevitable that the federal minimum wage will be increased, if not after the mid-term elections then sometime next year. If you ignore this eventuality, then you'll be forced to suddenly absorb this additional cost when it happens. However, if you agree that a wage increase is inevitable, you'll help to smooth out your cash flow by escalating the minimum sooner rather than later. An action like this will not only avoid a jump in wages but also show valuable good faith with your staff.
4. Lock in long-term agreements.
As I noted in my previous blog, inflation is heading north and competition for people is heating up. Your employees will be soon expecting more than cost of living increases, and more competitive salaries. Your first order of business is focusing on your most valuable employees--your key managers, your most productive assets. If you don't already have them in place, consider long term employment contracts with these people. Build in a fair raise, but something that won't kill you if inflation is higher than expected. Instead, include a reasonable bonus formula, calculated on profits or some other metric where you will be compensating based on performance. And for God's sake, make sure you've included a non-compete clause too! Locking in your main people long-term will provide peace of mind for all involved.
5. Cross train.
Partner up your employees with one another and require that each be cross-trained in the other's job. This is not only a good backup plan for when one employee may be away on vacation or extended sick leave, but a great way to create an extra set of hands for when things get temporarily busy without having to hire another person. Cross training will also help breed familiarity and teamwork in your group. Assign one person in your office (Your office manager? Your general manager?) to oversee this program.
6. Make a list of partners.
The most successful small business owners I know also know that they can't do it all on their own. They forego some profits to make sure that their company is focused on what it does best. So when that next job comes in that requires finishing, extra paint, a custom service or an added accessory, try to avoid the temptation of keeping it all in house and instead outsource that to a favored partner company. They can probably do it better than you, and you can avoid bringing on unnecessary labor to do a task that for all you know is just a one-off opportunity. Have a list of partners and friends, each with their specialty, who can pitch in when things get crazy. Because things will get crazy, right? Let's hope so.
7. Ready your customers for price increases.
Ultimately, you will have to be paying more for your people and that's going to have to filter down to your customers. You'll do everything you can to avoid that because you know the abuse you'll receive once you announce that price increase. But it's best to ready your customers sooner rather than later. Run the numbers now, not later. What happens if you raise prices on your lower priority customers while keeping things the same for your most valued customers? What about if you raise prices on this service but not on that service? What specials can you offer to those customers that will pay more for this or that product? Now is the time to run through your future scenarios and to alert those buyers who may soon be affected. No one likes surprises, especially your customers.
Yes your payroll costs will be going up. But that doesn't mean your profits have to suffer. Businesses are all about navigating change. The smart business owners I know are planning their actions well before the change occurs.
GENE MARKS | Columnist | Owner, Marks Group
Gene Marks is a columnist, author, and small-business owner. He oversees the Marks Group, a 10-person technology consultancy to small and medium-size businesses. A certified public accountant, Marks has also worked in the entrepreneurial services arm of KPMG. He writes for The New York Times, Forbes, and The Huffington Post.