The recent minimum wage increase announcement has significant implications for business owners. While this decision aims to improve workers’ living standards, it challenges businesses to adapt to higher labour costs.
Australia’s minimum wage will increase by 8.6 per cent, and award workers will get a 5.75 per cent pay boost.
The new national minimum wage will be $23.23 per hour and $882.80 per week, based on a 38-hour week.
The boost to the wage rates will come into effect during the first full pay period on or after July 1, 2023.
This is compounded by the Super Guarantee rate increase that also comes into effect on July 1 2023.
Please find out more about the rise in the Super Guarantee rate in our previous article.
Impacts of the Minimum Wage Increase on Businesses
Many businesses may experience a domino effect of impacts from this one economic decision. Some of these impacts and strategies to counter them are:
Rising Labour Costs
The most significant impact of the minimum wage increase on business owners is the rise in labour costs.
Small businesses, in particular, may experience a considerable financial burden. This wage increase can cascade down payroll expenses, squeezing profit margins and potentially leading to reduced hiring or even layoffs.
However, an economist from Commonwealth Bank said the wage increases would only affect 11 per cent of the national ‘wage bill’.
Business owners must undertake comprehensive budgetary adjustments to cope with the increased labour costs.
Reviewing and revising financial plans will be crucial, considering the new wage structure.
This may involve:
- reassessing pricing strategies,
- re-negotiating contracts with suppliers,
- and exploring potential areas of cost reduction to offset the impact of higher wages.
Reach out to our business advisory team to assist in making the applicable changes to secure your business longevity.
Improving operational efficiency becomes paramount when dealing with increased labour costs. Business owners should analyse workflows and identify areas where productivity can be enhanced.
Streamlining processes, adopting automation technologies, and optimising staffing levels can all minimise the impact on the overall cost structure. Exploring how the supply chain may be optimised could further contribute.
Investing in employee training and upskilling can lead to a more productive workforce. This can result in maximising the value derived from the increased wages. It may include a strategic view on modern award minimum wages and hours worked.
Pricing and Revenue Strategies
With higher labour costs, businesses may need to re-evaluate their pricing strategies. Raising prices may be necessary to maintain profitability, but this decision must be carefully balanced with market dynamics and customer expectations.
Conducting market research, analysing competitor pricing, and assessing consumer sensitivity to price changes can help business owners make informed decisions.
Additionally, exploring alternative revenue streams, diversifying product offerings, or targeting new customer segments can help offset increased labour costs.
Effective workforce planning is crucial in adapting to the minimum wage increase. Business owners should consider reassessing staffing needs and labour allocation.
This may involve:
- cross-training employees to handle multiple roles,
- optimising schedules to ensure optimal coverage during peak hours,
- and evaluating the possibility of flexible or remote work arrangements.
Owners can mitigate the impact of increased wages by aligning the workforce with the evolving needs of the business.
Employee Engagement and Retention
The minimum wage increase can allow business owners to foster a positive work environment and boost employee morale. Recognising and rewarding employee efforts, offering additional benefits, and providing growth opportunities can help retain valuable staff members.
Engaged and satisfied employees are more likely to contribute to the business’s success, reducing recruitment and training costs.
Collaboration and Industry Support
Business owners should seek support and collaboration within their industry to navigate the challenges of the minimum wage increase.
Engaging with trade associations, chambers of commerce, and networking groups can provide access to resources, insights, and best practices.
Sharing experiences with peers who face similar challenges can help generate innovative solutions and alleviate the burden of adjustment.
Make Changes To Comply With New Wage Laws
While the wage increase aims to cover the increasing cost of living, it presents a significant challenge for business owners.
Entrepreneurs can protect their business’s sustainability and growth by planning and introducing strategies to tackle increasing labour costs. This will help them adjust to the new wage structure.
Contact our accounting team to ensure your budget and payroll are updated before July 1 2023.