Setting Small Business Wages

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Raising the FlagAs minimum wage increasingly becomes a hot news topic from Washington DC to Seattle, Washington, small business owners are weighing in.  Some say they cannot afford to pay more wages as they are struggling to hire people, recover from the recession, and compete with big companies. However, 61% of small business owners say they are in favor of increasing the “federal minimum wage to $10.10 per hour and adjusting it annually.”    Their reasons: more purchasing power of minimum wage earners, improved employee retention, greater productivity, higher customer satisfaction and an improvement to the economy overall. Furthermore, states that have enacted minimum wage increases have experienced 50% more employment growth than states that haven’t.

There is a difference between minimum wage and a living wage.  While a federal minimum wage increase is in discussion, not all parts of the country are equal in terms of a living wage.  A professor at MIT and her students have developed the MIT Living Wage Calculator, determining the living wage on the cost of basics (food, child care, medical, housing, transportation and other) in that area.  For example, a living wage in Washington DC for one adult without children is $13.67, while a living wage for one adult without children in Denver, CO, is $9.27.  Ikea, the Swedish furniture company just started using this calculator to determine how much to pay their employees in the US.

As very small businesses grow, they hire new employees and/or convert contractors to employees, to satisfy IRS requirements.  The owners have to figure out how to set wages, define benefits, and establish payroll and tax payment processes, systems, and services.  Hiring the first employees is a huge shift for small business owners and requires time they rarely have.  Having the MIT Living Wage Calculator may make it easier to set employee pay rates even after minimum wage debates are settled and higher wage levels become law.

All the best!



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