Compliance

Minimum-Wage Analysis Takes Maximum Effort to Determine True Business Costs

By Raj Narayanaswamy

Dec. 21, 2015

When people enter the job market, there’s a tacit expectation that their wage will increase over time. Whether it’s a one-off bonus, a promotion or a new job with a nice salary bump, people want to leave the office with a paycheck they feel values their work and time.

Enter the minimum wage debate, which has taken center stage across the country. The hikes are long overdue. In the United States the minimum wage is more than 25 percent below its peak in 1968, and a federal wage hike to $12 an hour by 2020 from the current federal minimum wage of $7.25 per hour would lift wages for 35 million American workers.

Yet the naysayers have their own supporting data, claiming that the wage hikes would destroy jobs because of increased labor costs, and existing employees would be forced to work harder and longer. Several Republican presidential candidates have rejected calls for a $15 per hour minimum wage, while the Obama administration continues its attempts to push its minimum wage proposal forward.

The truth is, no matter what side of the fence you’re on, it’s easy to find data to support your argument — and the reality is not as clear-cut or generic as many pundits would have you believe.

Sweeping generalizations won’t help businesses strike the right balance in managing employee morale, productivity, customer satisfaction and business growth. Rather, what the minimum wage debate has illustrated is the imbalance that exists in businesses today in juggling these four interconnected factors. The food services industry has the highest turnover rate compared with other sectors, with over 100 percent churn annually. This has a palpable effect on how a business hires workers, retains talent and achieves a competitive advantage. The greater the imbalance, the greater effect there is on the business.

Instead of focusing on wages per se, businesses must establish the right mix of talent, costs and technologies to support their goals. Sure, the immediate reaction with the minimum wage debate is to cut employee hours or lay off staff, but businesses should first exhaust all options of finding ways to increase employee productivity. Are there areas where people are spending too much time on highly labor-intensive administrative tasks or other inefficiencies? For example, is the human resources department focusing most of its time in processing manual documents rather than using that time more effectively in driving strategies in hiring, training and retention?

Senior management must identify the right pool of talent and skills for the business — including part-time or full-time employees, remote or office-based staff or independent contractors. With the payroll process accounting for more than 50 percent of operating expenses in businesses, paying employees is one of the biggest costs to any organization – and high employee churn can add costs when you factor in interviewing candidates, hiring, training and reduced productivity costs. For entry-level employees, it costs between 30 and 50 percent of their annual salaries to replace them, while for high-level or highly specialized employees the estimate is closer to 400 percent. Reducing hours and staff also has the potential consequence of affecting employee morale — and raises a yellow flag for retention.

Secondly, an analysis of operating expenses is crucial. For example, in the professional services industry, data need to be entered quickly and accurately to invoice clients on time and minimize revenue leakage from potentially missing hours in time sheets, lost transactions and inaccurate billing. Lengthy cycle times in processing invoices increases the chances of missed revenue, and the more disparate the information, the higher the chances of error.

Thirdly, businesses should consider investing in technology. It’s the age-old dilemma to drive business growth — balancing investments while improving costs. Here’s where it makes sense to investigate automated technologies to drive profitability and productivity gains.

While the minimum wage debate continues across the country, pay is only one piece of a bigger jigsaw puzzle. Companies might not have the final say on the increase in wages and when they will be enforced, but they can be on the front foot by looking at how they can cultivate their resources to forge their own path to success.

Raj Narayanaswamy is the co-founder and co-CEO of time and workforce management software company Replicon Inc. To comment, email editors@workforce.com. Follow Workforce on Twitter at @workforcenews.

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