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How to Adjust to Increases in Minimum Wage
April 1, 2019 | By Neil Ducoff | 1 Comment
The new big question salon/spa owners are asking is, “How will we be able to afford these new minimum wage laws?”
Well, like any other mandated increase in the cost of doing business, you figure it out. You make adjustments. You find a way to make it work.
The fact is, paying minimum wage is the law. If attendance is mandatory, employees must be paid. (Huddles, meetings, training, etc.) That’s only fair and honest.
And paying commission doesn’t mean a salon/spa isn’t required to pay minimum wage.
The formula is simple: Total earnings per week divided by hours worked = Average Hourly Rate. Note: Hours worked means all hours the employee is at work — not just time servicing clients.
If the Average Hourly Rate for that week is less than the Federal or State minimum wage, the employee is due additional compensation.
Some states allow tips to be averaged in. Make sure you know and understand the minimum wage laws in your state. Don’t assume anything.
Here are my No-Compromise Leadership strategies to adjust to the new minimum wage laws:
- Damn, it’s “minimum wage”: I get that payroll dollars add up. It’s also frustrating when federal and state (and city) governments make decisions without understanding how they will impact small business owners. Not to mention how these costs will have to be passed on to the consumer. But we’re still talking about minimum wage here — the lowest rung on the income ladder. With today’s cost of living, minimum wage is brutally tough to live on. Just my opinion; Growing a great business on the cheapest labor cost possible by law isn’t a path to greatness.
- Price increases on commission: The knee-jerk reaction to operating and labor costs increases is to raise prices. If you pay commission, any price increase gives an immediate pay raise to commission employees. Given this, in your attempt to cover higher costs, in this case higher minimum wage rates, everyone gets a raise and the salon/spa gets a fraction of that increase. If the salon/spa doesn’t operate on a budget, the chances of that additional cash flow being there to cover that new cost is slim to none. For salons/spas on Team-Based Pay, it’s rather easy raising prices to cover higher operating costs, because the price increase doesn’t increase payroll. Click here for more info on our upcoming Team-Based Pay Conference.
- Think about it: What does it say about our industry if an increase in minimum wage causes owners to freak out? What does it communicate to those considering a career in our industry if entry level jobs pay minimum wage? Why should someone spend $15,000 to $25,000 or more, and year of their life, to attend a top cosmetology school, if the starting pay opportunity is minimum wage? I get that newbies need to pay their dues, but what about money to buy food and put a roof over their heads? When so many employee-based salons/spas are complaining about a shortage of qualified workers, perhaps it’s time to rethink what the opportunity being put out there truly looks like.
- Gotta put it in your Cash-Flow Plan: At Strategies, we make building and living a cash-flow plan (sales projections and expense budget) a mandatory process in our coaching and training. The ability to control cash flow, payroll costs, product costs and all operating expenses — and create profit and cash reserves — is damn near impossible if the owner fails to plan and live their cash-flow plan. Meeting new mandated minimum wage laws, or any other increased cost, is a challenge for the financially undisciplined. It may not be a breeze for those that budget, but financial discipline sure helps. Want us to build your cash-flow plan for you? Click here to learn more.
- Efficiency and productivity: What’s your productivity rate? (Ratio of hours available for sale versus hours sold.) If it’s below 75%, that means one quarter of the hours on your appointment book generate frustration rather than revenue. Product waste can be reduced and eliminated. Having assistants on payroll to help busy service providers, while other service providers watch, drives up costs and kills profit. Efficiency requires systems, structure, accountability and a company culture that embraces and prides itself on being efficient. Maintaining a productivity of +/- 80% to 85% is leadership and systems driven. Prebook, frequency of visit and retention of new and existing clients drives efficiency and productivity. KEY: Keeping productivity rates high means fewer and better paid employees. Lower productivity means the opposite.
Here’s my challenge to you: If you’re overly concerned about the current and future increases in minimum wage, it’s time to examine your business model, your pay method, your systems, your culture and how you lead.
Your concern should be growth, providing career and income opportunities for employees, creating profit and financial stability.
Check out this link for a chart detailing current and future minimum wage by state (and cities) and if, and how, tip income is factored into determining minimum wage.