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Wages of fear (and hope) among small business owners

Wooden blocks with $ sign on them stacked representing rising wages

Restaurateur James Beck embraced the living wage at his Bistronomy¬†eatery in Napier.‚Äč

"It felt like the right thing to do," said Beck, who believed¬†the hospitality industry had to pay wages that made it a lifetime career option for people starting out on their working¬†lives.‚Äč

Most small business do pay more than the minimum wage, a survey of just over 650 owners of small businesses conducted by Stuff and Neighbourly found.‚Äč

Just 22 per cent said they had any employees on the minimum wage, which rose¬†on 1 April to $16.50 an hour.¬†‚Äč

But the proportion of small businesses with some staff on the¬†minimum wage is going to rise as the Government has pledged to lift the minimum wage to $20 an hour in 2021, though no firm timetable had been set for the rises.‚Äč

Marisa Bidois, chief executive of the Restaurant¬†Association, expected the rises to take place in a series of¬†annual¬†jumps, which would take some swallowing for many restaurateurs and cafe owners.‚Äč

"The profit margins are pretty thin in the industry," Bidois said.‚Äč

The minimum wage rises¬†could¬†leave living wage employers like Beck losing the promotion value of being able to assure customers they pay much better than their rivals, though he's not particularly bothered.‚Äč

"We never made a big thing of it," Beck¬†said, about becoming an employer committed to a living wage of at least $20.55¬†an hour.¬†"We certainly wanted people to know, but it's not increased our business."‚Äč

"I was happy to see it," Beck¬†said of the minimum wage rise plans. "If everyone is doing it, then I hope it means people will have more money to spend."‚Äč

That in turn, he hoped, would see more money flowing around the economy, and more business for hospitality enterprises like his own.‚Äč

Absorbing rising costs has become one of the two biggest business threats identified by businesses.‚Äč

Survey respondents said the two biggest threats to their companies were: rising costs (34 per cent) and legislation/compliance (24 per cent).‚Äč

While that seems to imply that prices businesses charge to consumers will have to rise, not every small business is going to find they can do that.‚Äč

"Consumers are getting pretty tetchy¬†about cost increases," said Craig Hudson,¬†Xero¬†NZ Country Manager‚Äč

Factors feeding into higher input costs for small businesses include petrol price rises, the weaker dollar, as well as the minimum wage.‚Äč

"If you look at what has happened in the past, when a new tax or minimum wage increase happened, there would be a little bit of negative commentary about it to start with, but SMEs then just get on with it, and it's usually okay," Hudson said.‚Äč

Owners of small businesses were an adaptable bunch, but this time, the price increases were mounting up.‚Äč

"This time things are a little bit different because they are getting hit with multiple cost increases from multiple sides," Hudson said.‚Äč

Accountant Sue De Bievre from Beany expected the minimum wage rises to cause a ripple effect lifting the wages of people currently being paid more than the minimum wage.‚Äč

That was because higher-skilled, more efficient workers will expect to still have their skills recognised by their employers maintaining the gap between their paypackets and their lesser-skilled colleagues.‚Äč

"If you raise the minimum wage, you may also have to adjust everyone upwards to maintain pay differentials," De¬†Bievre said.‚Äč

"Although businesses with a high proportion of low pay employees will be hit hardest, it can potentially push up the whole ecosystem, so think this through in terms of potential impact on your profitability."‚Äč

Businesses that struggle to pass on rising costs through higher prices are going to have to get more efficient, said Hudson.‚Äč

Xero provides accounting software to many businesses, and has noted a pattern among its many SME clients.¬†The fastest growing small businesses are those¬†embracing¬†digital technology to outsource some of their functions, such as trades businesses using¬†Tradify¬†to manage their quoting efficiently.‚Äč

"Businesses that used Xero and one other vertical solution were growing net profit 30 per cent faster than businesses just using Xero," Hudson¬†said.‚Äč

Becoming more efficient could mean fewer employees per company, even if each of those employed is paid better.‚Äč

"It may have the unintended effect that fewer people are employed," Beck said.‚Äč

Despite the pressures on businesses, the Stuff/Neighbourly survey found two-thirds felt they operated in a "business-friendly environment", and 65 per cent expected to book an increase in profits in the coming 12 months.‚Äč

Despite that, just a quarter expected to hire new staff in the coming 12 months.‚Äč

Not that it's easy hiring staff, with¬†48 per cent of business owners saying it wasn't easy to find the people they needed, with the skills they needed.‚Äč


Originally Published by¬†Stuff¬†‚Äď 18 October 2018‚Äč