Whether you like it or not, the facts are that your payroll costs will be exploding over the next few years.
What are the three biggest line item expenses on your income statement? If you're like most companies, the three are taxes, materials and payroll. If you're in the service business it's just taxes and payroll. Since the recession, payroll costs have not risen very much. And during this period, with unemployment high, the threat of losing key employees was not substantial. And the opportunities for finding talented people at a bargain were a-plenty. But no longer.
In the next few years you will see an explosion in your payroll costs. They will rise, overall, between 5 and 10 percent depending on your industry and your region. Whether it is the wages you pay or the cost of benefits such as healthcare, you'll be spending more to employ. Why?
1. There will be an increase in the national minimum wage.
It's a foregone conclusion that minimum wages will be going up. People like to point to Washington State and San Francisco--two places with some of the highest minimum wages in the country that have also experienced significant economic growth--as one of the most persuasive arguments why an increase is justified. But that's not really the reason. (Your state would grow more than the sickly national average, too, if you had companies like Amazon, Microsoft and 10 zillion venture capital firms from Silicon Valley located there.
The real reason is because companies like Walmart are now caving. They're adjusting to the political landscape. And let's face it: $7.25 an hour is pretty darned low no matter how you slice it. I wouldn't expect the federal minimum wage to go as high at $15 per hour like the mayor of Seattle is proposing. But if you're still paying the minimum, you can expect to see this go up to somewhere around $10 per hour sometime in the next year or so. That's a 43% increase by the way.
2. Your healthcare costs will go up.
Most business owners I know, regardless of the number of people they employ, are steeling themselves for an increase in premiums over the next few years. The reason is math. There are between 30 to 34 million uninsured in the U.S. These people were, as of Jan. 1, required by law to get insurance. The insurance companies are now required by law to provide a host of essential benefits in return for this huge new market of customers. Except as of now, most of these 30 to 34 million haven't shown up. In fact, only 26 percent of the people that signed up on healthcare.gov did not have health insurance, according to survey this week. What happens if the rest of the uninsured--the young, the evasive, the gamblers--don't show up? Who will pay for those increased health costs that our insurance companies are now required to provide? Yeah, you guessed it. And so have many business planners.
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