On October 1, 2023, the minimum wage in Ontario was raised to $16.55 per hour, representing a raise of 6.8% for the province's lower-income earners.
And yes, this sounds like great news for the workforce- an additional $2,200 per year provides a little breathing room for those earning the minimum wage in the face of rising inflationary pressures. Nevertheless, rising expenditures continue to put a strain on finances. However, if you are a business owner, you may be one of the many who have been feeling gripping fear since the announcement of the minimum wage increase in March of 2023 (We got you, as we are in Ontario too.).
The rapid increase in Ontario's minimum wage worsens existing economic uncertainty, given that labor costs account for the majority of businesses' greatest expense. However, resilient business leaders have the ability to pivot in order to limit impacts. Let's take a look at the minimum wage hike in Ontario and the ways that local entrepreneurs can adapt.
Understanding the Worker Impact
In the series of labor law reforms across Canada this 2023, the Ontario minimum wage hike ranks as one of the highest of all the provinces in Canada.
This increment will be welcomed by an estimated 1.1 million workers who earn the minimum wage or slightly above it including special minimum wage rates for the following sectors:
Working students are now to get $15.60 an hour from $14.60
- Work-from-home employees will now earn from $17.05 to $18.20 an hour
- Hunting, fishing, and wilderness guides are rated from $77.60 to $82.85 a day for less than five hours, $155.25 to $165.75 for five or more.
And although the impact of this wage increase is slightly muted by today’s high inflation of around 8%, this additional income may also mildly stimulate local economic activity as minimum wage earners spend more at businesses. It’s Economics 101- when people have more spending power, more money will go around.
A glimmer of hope is still great, no matter how small- this bump up of $2,200 per year does aid workers facing rising rents, fuel costs, and essential expenses. This means Ontario can expect a more motivated workforce looking for job opportunities, especially in this area were they are able to at least slightly elevate their means of living, feel secure in their jobs, and worry a little less about the future.
Ripple Effects on the Economy
Beyond direct worker and business impacts, Ontario’s minimum wage hike may create ripples in its economy:
- Job losses could occur if businesses become unsustainable, increasing unemployment.
- Consumers face price inflation in many sectors, affecting broader spending power.
- Ontario’s overall cost-competitiveness may decline compared to other provinces.
- Government spending on social supports may decrease as incomes rise for minimum-wage earners.
The net economic effects likely won’t be clear in a snap, but the policy signifies a precedent for an accelerated march towards a $20 minimum wage in the coming years.
Challenges for Business Owners
While the increased minimum wage of $16.55 per hour would benefit employees, it will translate into more dilemmas for businesses that will shoulder this extra cost, especially for those who rely heavily on minimum wage workers.
The spikes in payroll when profit margins are already low will force some difficult choices for business owners. Case in point: in an effort to preserve their profit margins, they have recently increased their prices across the board.
To offset the increased wage costs, businesses will attempt to reduce employee hours, halt recruiting, and maybe lay off workers.
Strategies for Small Business Owners
Adapting to Ontario’s mandatory wage increase poses very real near-term challenges for small business owners. However, with proactive planning, impacts can be minimized.
- Optimize budgets: Any change starts with an audit: scrutinize your expenses and labor utilization to become as efficient as possible. Identify redundancies to cut back on so you can allot for this change.
- Consider automation: If you haven’t been on the digital transformation wagon yet, now is definitely the time for it. Transition applicable tasks to technology solutions to reduce minimum wage dependency long-term.
- Review pricing: Although this may be the first thing that comes to mind, raising prices should be done with much consideration: a jump in pricing risks negative sales impacts. A more gradual increase may be necessary to remain viable in a competitive industry.
- Bump up on Marketing: If your payroll increases, then your sales should be increasing too (although anytime is a good time to work on sales). Social media marketing, reward and referral programs, and highlighting big-ticket, high-margin items would help you increase your cash flow to offset increasing operation costs.
- Leverage subsidies: Make the most of what’s out there—get access to available grants, tax credits, and wage subsidies to help offset rising wage costs.
- Consider outsourcing. And when we say consider, we mean really carefully. Outsourcing certain functions may bypass wage impacts, but worker classification rules must be followed.
- Enhance productivity: Upgrade technology and processes to get more productivity per worker. This dilutes impacts from wage increase.
- Communicate with staff: Instead of sweeping things under the rug, get everyone’s buy-in. This a great time to strengthen your employee engagements and foster open dialogue to gather input and address challenges collaboratively.
With foresight and focus, Ontario’s small businesses can still operate competitively and profitably, despite the latest wage increase pressure.
Continous Adapting with Business Advisory Support
Wage increases and other shifts in labor laws are not a one off thing- developments in minimum wage adjustments have been changing over the last 15 years and is projected to change annually. Small business owners can stabilize their company’s finances and operations despite the ever-changing conditions with the help of digital advisors and government grants.
Our dedicated team (no, this is not just lip service) can help businesses holistically, especially with this new change in the workforce. As a business in Ontario ourselves, we understand the challenges and pressures the minimum wage increase creates for small business owners. We've navigated turbulent economic conditions ourselves and can provide guidance based on real experience. Our advisors live and breathe the small business world day in and day out. We know every dollar counts when margins are tight. We appreciate the complexity behind each management decision. In short, we've been there before; that's why we uniquely understand what Ontario's employers require to adapt and succeed despite hurdles. Let us put our insights to work for your business.
With the tools to evolve strategically, Ontario’s entrepreneurial business leaders can continue driving growth and opportunity for the province. Start a conversation with us- we are ready when you are.