Does minimum wage increase mean minimum margins for you?

 

The big headline news in my part of the country recently was this: “It’s Official: [Governor] Kate Brown signs minimum wage bill for $14.75 for Portland. Read News Article…

If your employees are like mine, they’re all excited about the raise coming to them immediately (they read the headlines only). In reality, this increase in minimum wage happens gradually between now and 2022 and only affects employers in the Portland metro area.

But the trend is upon us. And for small business owners and operators we know exactly what this means: either higher prices or lower margins.

It means something different to me: a shake out of weak providers. It also gives providers time to look at what will make them stronger and help them survive. I’d like to offer our help!

What can give consumers a greater sense of value that results in willingness to pay higher prices? Better service, higher skilled workers and specialty certifications that translates into “I’ll get better care if I pay a little more.”

How can you build a stronger reputation and referral network now that can withstand higher prices ahead? Focus on the quality of your service. And that relates directly to the training of your team.

A shake out is coming. For those providers who are going the extra mile in training, certification and service this will be a good thing. For the others who have just been squeaking by? RIP, my friends.

12 Responses to “Does minimum wage increase mean minimum margins for you?”

  1. Irma

    It’s the reimbursement rates leading to poor salaries. Home Health Aides prefer working at a McDonalds for several hours straight rather than work 2 hrs. here and two hour there. I can’t blame them. Many have no benefits or paid time off. We try our best to offer as much as we can possibly afford to our caregivers but it’s getting harder and harder with so many new regulations.

    Tomorrow I will be meeting with a legislator from the health committee in NJ regarding the effects of a $15.00 dollar minimum wage to our Industry. I would love to pay caregivers and even office staff higher wages but how do you accomplish this with reimbursement rates as low as 13.80 per hour? Home Health Aides will either be out of a job as we close our doors or go to McDonalds or some other type work that does not involve the stress and liability of working with an individual’s life.

    Reply
  2. scott

    My son works at McDonalds and his hours are about as irregular as it gets. I don’t believe this is a valid argument. There are people just looking for a job, any job, and there are those who want a job that gives them a certain sense of personal satisfaction. Unfortunately, and according to Pareto’s Rule, this only constitutes a small portion of any employers’ demographic of employees (80/20 rule = 20% of your workers do 80% of the work or the quality work a lot of times). I believe that having to pay $15/hour for a caregiving position can only have one of two effects: 1) it will decrease the business owner’s margin (it has to as labor is a home care agencies largest expense). As long as the home care owner understands this and is accepting of making a lot less (about 33.33% less of a net margin, because if you go from $9/hour to $15/hour that is a 66.66% increase in one’s labor cost). I know for a fact that a lot, if not most home care companies don’t even have a net margin near that amount, which leads to 2) That the owner would have to increase the cost of their service to their seniors. I have a serious problem with this for a couple of reasons: One, most seniors cannot afford the cost of private-duty care and two, I got into this business to help seniors, not to help employees. Granted, I believe that we have a responsibility to offer a safe working environment for our staff, but if an individual did not take the time or effort to learn a trade (like an electrician, plumber, office worker) or get an education to better themselves than why are we even discussing giving them more money. First off, less than 4% of the working population in the U.S. makes minimum wage, so I’m not sure again why all the fuss. The minimum wage was designed as an “entry wage” so that one could learn a skill and work their way up the ladder. I don’t mean to sound cold or calloused, but it’s simple economics: If you raise your rates your are going to take a hit on your margin (period!). That amount is up to you (for now at least). The one thing I would hate to see however, is this industry driven underground, which is exactly what will happen if we have to charge seniors $40/hour for private-duty care.

    Reply
      • Bobbie Sampson

        Well…actually, there are several costs that need to be added-on pay. The employer pays 12-13% in payroll taxes (medicare & Social Security) to the government on the employee’s behalf. Then there is 3% to the state for workman’s comp, AND the premiums for the workman’s comp insurance the state requires. Then there is more to be paid to the agency costs that are based on the payroll amount, such as liability insurance and bonding. Don’t forget the state licencing fee which is often also based on the total amount on payroll each month. My $10.00/hr employees cost me. When I owned an agency in Colorado, it cost me $14/hr to pay an employee $10…AND that did not include the fixed cost of the office, training, utilities, etc. A lot of agencies will be squeezed-out if the minimum wage goes too high.

        Reply
      • Nora Borges

        JN;

        Your not correctly assessing the math in all this. First she said underground home care of $40.00 not agency’s charging $40.00. In either case a $35.00 margin does not even touch the workers comp insurance, required California medical insurance that must be offered as of 2016 or fines will be imposed. Employee payroll costs, live scan clearance costs, new hire trainings (DSP; ProAct etc) and continual training to meet regulations, which means overtime on payroll. So that $35.00 profit margin is no longer a profit margin. Just Saying…

        Reply
  3. Dave

    The support of an increased minimum wage to support a family is flawed for several reasons, as well as being the death knell for home care as it is now. Minimum wage is meant for entry level, not to stay at that position or wage level for any significant time frame. Finish your education, and/or work at becoming the assistant manager at McDonalds which surely pays more. It was never intended to support a family. In additrion, if both parents are making minimum wage, aren’t you in much better shape to support a family? Or is one parent missing?
    Studies have shown that employment in Seattle is way down, and way up in the Seattle burbs. All it did was force businesses to change what they do to make money. In home care, we will have to do more with less employees, charge more to our clients, making the difference between home care and long-term facilities less attractive. Not good at all for an open economy.

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  4. Nancy Shope

    With the proposed minimum wage hike for NYS I am looking at the demise of my job and those of my nine employees. Our residents at our not-for -profit adult care facility receive state funding to be able to pay their room and board rate, a payment which the state of New York sets. I cannot raise my revenue and the state of New York has consistently refused to give any increase. The future of small adult care facilities is nonexistent if this law passes. In addition, my husband works for a not for profit organization which serves persons with disabilities. Who is going to do this work at $4.00 less an hour than what employees in restaurants make? These places that serve needy people are going to crumble. And what is going to happen to the frail population who will have very limited services now? What are these politicians thinking?

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  5. Charles

    Your situation is mirrored across the Country when a progressive politician gets hold of the reigns of government.
    We have a 146 beds RCFE in California and they keep raising our minimum wage. January 2016 we were legally bound to increase the minimum wage to $10/hour and by June they are asking us to raise it again to $10.50 in 5 years they are forcing us to raise the minimum wage to $15/hr. This is coupled by the most liberal workers comp laws that is forced against the business owners, that propels the highest workers comp. claims in the country forcing some business owners to close shop leaving many poor Californians out of worked increasing unemployment and forcing higher taxes to all Californians.

    I have no problem in providing my staff with a comfortable salary depending on the market condition. But what these Lawmakers are doing is to pass their failed policy to business owners. It is not the responsibility of the Government to force businesses to artificially increase the minimum wages when a large part of their duty is to come up with laws that will percolate a thriving business climate, increasing competition were workers experience a salary increases and allowing them to keep most of what they earned. The biggest fraud are perpetuated, by the self serving politician, against the American workers. A falls narrative of “helping the needy” is a propaganda being funneled by these politician but in reality they are covering their failed policy and lack of knowledge on how to make life better for the working population.

    A force minimum increases on companies: will trigger inflation by forcing companies to increase their product or service cost, with rippling effect through out the industries, affecting the very slice of the population they claim to be helping. These are politics and keeping their power is their ultimate goal the only way to stop these is to organized, educating the populous is the way to stop the SPIN.

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  6. Shong

    Well, I know that it will not affect only Partland but it will spread to MN too. That minimum wage is too high for small business and it will affect most of mom & Pa business that we cannot hire worker to help us operating our business. Big corporation is ok. For MN, I am not ready for it. I vote for No.

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  7. Irma

    Wow Sharon we had the same thing happen in NJ. The mayor set an ordinance increasing minimum wage in Jersey City but only to city employees. This did not happen gradually. That’s right he increased city employees up to $15 dollars all at once. Now we fear this will be the trend.

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  8. Susan

    I have a Foster home also and since the state cut our service payment back so much at the first of the year this would mean we could not take time off every month, my husband and I only get about 4 days a month off now and sometimes go a couple of months with no time off. most of our residents are on SSI and can not afford a R&B increase.

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  9. Sharon Brothers

    Thanks to everyone who has weighed in on this topic from all corners of the country. Clearly this isn’t an isolated problem but one that will need to be addressed nationally.

    Who will pay for care? Who will provide the care, both as hands’ on caregivers and provider organizations? How will we be able to care for low-income or publicly funded individuals?

    In an aging society these are very hard questions and deserve a very thorough examination and discussion. We’re on the front lines so will be the first to feel the pain but many will suffer if we don’t solve this problem.

    Thank you for continuing the dialogue!

    Reply

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