Severe Consequences of Increased Minimum Wage

increased minimum wage

Kathleen Wynne and her Ontario Liberal government’s decision for an increased minimum wage from $11.40 to $14.00 on January 1, 2018 and to $15.00 on January 1, 2019 is nothing more than an attempt to grab votes.  Ironically, the people she is trying to woo will probably become the casualty of this fiscal irresponsibility.

A lot has been written about the impending changes but it’s important to understand the consequences of the increased minimum wage hikes proposed by the Kathleen Wynne Liberals and the impact it will have upon some real life businesses and attitude towards these changes by business owners directly affected by this legislation.  Many of my clients fall directly into this group of companies affected and their take on on the change in laws.  They are literally putting a loaded gun into the hands of these affected businesses and forcing them to make some really difficult decisions.

Wynn is putting extreme pressure on the manufacturing, small business and retail sectors in Ontario with this short-sighted move.  Proposing an almost 35% increase to the minimum wage is not something that will likely be absorbed by customers with adjustment to pricing.  Not to mention, there are other costs that that an employer pays for, either in part or in whole on behalf of its employees.  The increase in minimum wage will also increase the contribution cost of the Employee Health Tax, CPP, EI and WSIB.  The additional mandated vacation increase from two to three weeks will also have a huge bottom line impact to businesses.

 4 Consequences to Business with Increased Minimum Wage:

  1.  Reduction to Benefits

If employers are needing to raise the minimum wage, employers will be forced to reduced costs in other areas.  Items like employee benefits, group pensions, group RRSP programs will either get reduced or scrapped all together.

I’ve had several clients who we had planned to launch or increase a DPSP/Group RRSP program to their employees in January 2018, have since been forced to put these enhancements on hold or scrapped indefinitely.  As one business owner client said to me, “the proposed changes will cost my business over $1,000,000 more this year because of the planned changes.  You simply cannot pass that extra cost onto your customers.  These changes will bankrupt companies.  Companies will simply not be able to afford doing business in Ontario.”  Two of my clients have stated these proposed changes will cost their businesses over $1 million.  Both of these companies state that their financial welling hang in the balance.  Both fear potential insolvency or be forced to relocate their businesses elsewhere.  Both of these companies employ over 500 people combined.

2.  Dealing with Tenured Employees

Hourly workforces that are currently around the $11.40-$15.00/ hour mark will have challenges in how they deal with tenured employees.  What happens if you pay an entry-level position $11.40-$14.00, suddenly you have tenured employees making around the new minimum wage level?  If you suddenly have entry-level employees making $14-$15/hour are you going to keep tenured employees at this same level as well?  Employers will face a mutiny on their hands if they don’t deal with this with potential powder keg.

3.  Constructive Dismissal Claims

If employers are forced to reduce other costs such as employee benefits and RRSP contributions, it may prompt put employees in a precarious position with regards to potential healthcare coverage.  An employee may make a constructive dismissal claim if employee benefit plans have been reduced significantly by the employer. This may have greater merit if catastrophic coverage has been removed or reduced from a plan or even the outright cancellation of employee benefit plans all together.

4.  Businesses Forced to Close or Relocate

A company’s survival hangs in the balance.  If the examples sited above are any indication, businesses will take a hard look at whether they can afford to do business in Ontario.  Whether business owners see it worthwhile relocating to another province or country depends upon the vision, patience and financial wherewithal of the entrepreneur.  If a business owner is getting older and has enough to retire, he or she may just close down the business prematurely.  The likeliness of selling a business under these circumstances just became infinitely more difficult.  Ultimately, this will have a devastating effect upon provincial government revenue from corporations.

Evidently, Wynne and her political pundits never took an Economics 101 course at school.  It’s pretty clear of the economic ramifications when you propose to raise the minimum wage, let alone by 35%!

With the Wynne Ontario Liberal government trying to make it impossible for business to survive and the Trudeau Federal Liberals making it exceedingly difficult to create tax favourable benefits for the entrepreneurs who run these businesses, it’s becoming far less motivating for entrepreneurs to do business in Ontario.

 

Chris Coulter is the Founder and President of The Finish Line Group.  He works with business owners to leverage their businesses to increase their wealth, reduce corporate and personal taxes, create viable succession strategies, enable employee retention strategies and allow them to exit their businesses on their terms. 

Chris’ passion for what he does evolved from the mistakes he made in his first business; by not diversifying his risk and not utilizing a lot of the opportunities within his business to create significant wealth.  Chris found out the difficult way and now educates business owners on how to avoid many of his former oversights and ultimately control where their finish line ends.

 

Increased Minimum Wage

 

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