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The Next Business Disruptor: A Higher Minimum Wage

Many small businesses pay more than the minimum wage while others tend to follow state guidelines. But a higher federal minimum is likely to only impede growth.
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The debate over whether small businesses should raise their minimum wage has been heating up lately. President Barack Obama encouraged an across-the-board raise that would lift the federal hourly minimum from $7.25 today to $10.10 by 2016 in his recent State of the Union address, and 13 states raised their minimum wage on January 1.

At this point, the idea of a higher minimum wage is certainly more than a proposal or an idea in a speech--it's something of a national movement. According to The New York Times, 22 other states have considered raising the minimum wage. 

Obviously, everyone wants to make more money. And it’s easy to look at corporations that make millions and ask, “What’s a few more dollars per hour?” However, for small businesses that employ only a few people, this is a much more complicated question.

Small business owners take a much harder look at the entire cost of an employee, which often comprises life insurance, health care, savings plans, taxes, and so on. So what may seem like a minimal bump in an hourly wage on the surface is just another addition to an already big equation.

You could make the case that a higher minimum wage might be good for reducing turnover and ramping up productivity. But the problem with this argument is that many small business owners are already paying more than the minimum wage. 

Those restaurants, bakeries or house painting businesses, for example, may not be hiring for the longterm. A high school or college student is going to leave sooner than later, regardless of whether she's earning $7.25 or $10.10 per hour.

Managing costs, improving cash flow, and paying rent, plus taxes are already challenging for small businesses. The new health care legislation has added an additional layer of complexity, so what will imposing pressure to raise the hourly minimum wage bring? Shouldn't the market determine what small business owners should pay to secure the employees who will help them succeed?

Of course, small business owners know they're not the ones making the rules; they'll just have to adjust to them. So if this minimum wage increase comes to fruition on the national level, they won’t crumble or reduce their number of workers. The more likely scenario will be that they think twice before hiring or expanding for fear of the compounding costs.

While economists and small business owners will argue if the market, the state, or the local municipality should determine the appropriate wage, no one can argue that a blanket wage increase will mean different things depending on your market. Certainly a decent wage for someone working in Manhattan is quite different than what someone should earn in Butte, Montana.

How do you think your business--and city--would fare if the hourly minimum wage was increased? 

Last updated: Feb 11, 2014

MICHAEL ALTER | Columnist | President of SurePayroll

Michael Alter is president of SurePayroll, America?s leading online payroll service. He received an MBA from the Harvard Business School and holds a bachelor's degree in economics from Northwestern University.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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