Navigating the New Minimum Wage Increase: A Business Owner's Perspective

As a business owner, it feels like it has been an employee market for a long time. On June 3rd, 2024, Fair Work Australia announced a 3.75% increase to the minimum wage. This coincides with the pre-planned 0.5% increase to Superannuation, resulting in wages costs growing by 4.25% on July 1st, 2024. Often not realised, this increases flows through Australia’s 121 Modern Awards. As a business owner and CEO of wattsnext, this decision resonates deeply with me.

“This change is significant, and it’s crucial to understand both its immediate impacts and long-term implications on small to medium enterprises (SMEs)” said Luke Achterstraat, CEO of COSBOA. He recently remarked, “The increase in the minimum wage is a necessary step to ensure that workers can keep pace with the rising cost of living. However, it’s essential to balance this with the realities faced by small business owners.”

I fear unintended consequences, in my opinion what needs to be considered is there has been forced wage increases in Australia of over 15% since Covid (see table one). During a time where unemployment levels have been a record lows, immigration stagnant and the toughest talent market in living memory all pushing wages up.

“In my opinion this could be the final ingredient for the perfect storm of pressure for business owners.”?

The Positive Impact on Employees

First and foremost, the wage increase is undoubtedly exciting for employees. It ensures that workers, especially those at the lower end of the pay scale, can better manage the increasing costs of daily life. This adjustment is crucial in maintaining a fair and just society where everyone can afford the basics and live with dignity.

From my perspective, investing in employees’ well-being is fundamental. Higher wages can lead to increased job satisfaction, improved morale, and higher productivity. Employees who feel valued and fairly compensated are more likely to stay with the company, reducing turnover rates and associated training costs.

Challenges for Small Businesses

However, as Achterstraat points out, “Small business owners operate on thin margins and the impact of wage increases can be substantial.” This reality cannot be overlooked. For many SMEs, the increased payroll costs might mean tighter budgets, re-evaluating staffing needs, or even adjusting business models and organisational structures to stay afloat.

Particularly in labour-intensive industries like hospitality, retail, and services, labour costs can represent almost half of the overall operating costs. There is a significant burden placed on industries heavily reliant on human capital.

The Struggle for Sustainability

The current operating environment for small business operators is extremely tough, with ASIC’s latest 2024 insolvency statistics showing business insolvencies in NSW up 61% from only a year ago. Small business owners are struggling, and according to Smart Company, 43% currently don’t break even. Owners and some of our wattsnext clients are paying themselves less than the average salary and working longer than the median to keep the lights on.

At wattsnext, we have seen business restructure projects skyrocket from an average of 2-3 a year across our 17 years of operation to over 20 this financial year alone. This dramatic increase has been across all industries and illustrates the pressure SMEs are under to adapt and survive. This was prior to this 3.75% increase being announced. This is a true lead indicator that cannot be ignored!

Actionable Strategies for Business Owners

Business owners must be strategic. It’s about finding ways to absorb these costs without compromising on the quality of service or overburdening our financial health. Here are some clear actions to consider:

1. Explore Efficiency Improvements: Look for areas where operations can be streamlined. This could involve leveraging technology (like AI) to automate repetitive tasks. Most traditional roles can be restructured if you are utilising accessible large language models (LLM’s).
2. Renegotiate Supplier Contracts: Review and renegotiate contracts with suppliers to reduce costs.
3. Upskill Your Workforce: Invest in training to make your employees more productive and capable of taking on more complex tasks. This not only justifies the higher wages but also adds more value to the business. Again, accessible AI is forcing our hand here.
4. Optimise Employee Lifecycle Management: Focus on recruitment, development, retention, performance, and exiting processes. Now is not the time to carry a poor performer; maximise the return on your people investment.
5. Innovate and Adapt: Embrace innovation and agility to turn potential challenges into opportunities for growth. Have you adapted to hybrid working as well as you could?

Conclusion

Be wary of the flow-on of wage increases that could push your small businesses to the wall. We want SMEs to thrive despite the rising costs. Now is the time to assess your organisational structure and how you are managing your people.

As a business owner, it’s my responsibility to navigate these changes thoughtfully and strategically. As a wattsnext HR Consultant, there is a large ‘kit bag’ of strategies to leverage the return on investment of people. Many business owners have unfortunately neglected HR strategies and put their ‘heads in the sand’ when it comes to poor performance and behaviour since Covid. Now is the time to take action!

In conclusion, while the wage increase presents challenges, it also provides an opportunity to innovate and improve our business and people practices. By focusing on efficiency, adaptability, performance, and employee development, we can continue to thrive in this evolving economic environment.

Minimum Wage and Superannuation Increases (2021-2024)

?

AUTHOR: BEN WATTS

Ben is a veteran in the HR space- a forward-thinking leader specialising in functional business structures and people performance techniques. With twenty years’ experience managing large ASX listed corporates across multiple industries, Ben adds depth and expertise to our clients' strategy solutions, genuinely providing a commercial result for their investment.

?

?