Raising minimum wage


10th April, 2019

How Shorten’s plan to increase the minimum wage is set to impact SMEs

With the Australian elections just around the corner, opposition leader Bill Shorten has made it clear he intends to increase the minimum wage in Australia – something that will likely impact SMEs around the country.

Election time is always an eventful period and, as we enter the final stretch ahead of the big day, it’s crunch time for Australian politicians.

Strong promises of all sorts are now being announced on the daily, many of which are aimed at improving the wages of low-income earners and the profit margins of SMEs.

The minimum wage in Australia

The minimum wage for Australian workers has always been a contentious topic, with unions lobbying for increases for years, and slowly managing to increase it by a little more than five dollars per hour over an 11-year period.

At present, the minimum wage for Australian workers is $18.93 per hour before tax ($719.20 per week).

But according to opposition leader Bill Shorten, this amount cannot be considered liveable.

During a press conference in March, Shorten said that he “didn’t want adults in Australia working full time trying to survive on $18.93 per hour before tax” according to The Guardian.

Shorten’s proposed change to the minimum wage

In Australia, the task of setting the rate for minimum wage has always belonged to the Fair Work Commission. The commission takes a variety factors into consideration, including inflation, the health of the economy and the cost of living.

While the ALP has expressed that it does not intend to take this responsibility away from the commission, they have indicated that they want to change the way the process works and give the commission the right tools to set a ‘liveable wage’ rather than a ‘minimum wage’.

Australian shadow employment minister Brendan O’Connor said that the idea is even the lowest paid workers should be paid enough for “housing, for food, for utilities and to pay for a basic phone and data plan”.

How would SMEs handle the change?

One of the biggest challenges that SMEs face today is the ability to make a profit from their low margins, making every single line item on their Profit and Loss statement significant.

By raising the amount they need to pay their entry-level, full-time staff to meet the new liveable wage requirements, the margins are expected to become even tighter, making it even more difficult to find a way to turn over a profit.

But after recognising this potential issue, O’Conner explained that the ALP intends to take careful measures in ensuring that the above doesn’t happen by introducing the new wage standard in phases, allowing enough time for things to balance themselves out.

These careful measures include considering the ability for businesses to come up with the money, and the potential effect on employment, inflation and the broader economy.

What do SMEs think of the change?

When asked to share his thoughts on the subject, James Spittal, CEO of Web Marketing ROI told The Pulse that while he believed that there were “true arguments both for and against” the way Labor is approaching the minimum wage, he did have some reservations on the topic.

“My concern is that by raising the minimum wage you sometimes create the unintended consequence of making employable individuals less employable.”

“As Marco Rubio once said: ‘If you raise the minimum wage, you’re going to make people more expensive than a machine.’

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“Heading into 2020 and beyond, this is as important as ever.”

Minimum wages with an upside

A practice that is being adopted by many SME owners and startup founders is the idea of paying their staff the lowest allowable base wage but offering them significant upside if they reach certain targets or KPIs.

READ: 5 ways to keep remote staff motivated

Examples of these upsides are offering staff incentives like profit shares, a percentage of the revenue that they bring in or manage, and so on.

The idea behind this method of payment is to empower staff to take on the role of a business owner and make decisions that will increase their company’s bottom line – rather than settling for the status quo, knowing that their pay cheque will be the same regardless.

Incentivising staff can keep small businesses afloat

The question is – is this a fair approach to take?

While the answer to this question certainly differs from business owner to business owner, Spittal believed that this was not only a fair way of going about paying staff, but is “something to be encouraged, within reason”.

Spittal explained that if done correctly, offering attractive incentives to employees “helps SME owners be more successful” and with the current startup failure rate at 90 percent, improving their chances of success is a “nationwide priority”.