FMS Solutions Shares Food for Thought on Increased Minimum Wage

Independent grocers have experienced a rise in sales during the pandemic, but this increase doesn't come without a cost.

​​​​​How can an increase in minimum wage impact employers and employees? This is a question that FMS Solutions, a Fort Lauderdale-based company, who has provided accounting solutions and consulting services to independent retailers for over 45 years, looks to answer.

Though sales have remained above the 2019 baseline number, the uptick in sales doesn't come without a cost. Independent retailers now face an increase in the minimum wage while dealing with the costs associated with COVID-19.

According to the 2020 Independent Grocers Financial Survey, five in six independent operators installed plexiglass shields at checkout to protect associates and customers, and nearly 85 percent of independents have seen changes in overtime expenses, predominantly from lack of associates. Three-quarters, 76 percent, expect this will impact their business costs.

Twenty-one states started the year with higher minimum wages. And with new laws being signed, additional changes are coming to other states.

In states like California, the minimum wage will increase to $15 per hour by Jan. 1, 2022, for employers with 26 or more employees. Yet, for employers with 25 or fewer employees, the minimum wage will reach $15 per hour by Jan. 1, 2023.

"Employers need to understand the impact of the wage increases on their labor costs, taking into account employer taxes (FICA, FUTA, SUTA) that might increase as well," said Jon Cline, Chief Operating Officer, FMS Solutions. "Modeling the impact of these expenses and their strategies to maintain the bottom line will be crucial."

Cline also warns that while grocers are enjoying the sales lift due to COVID-19, sales will normalize, and the ability to manage labor costs will become top of mind once again.

As is with most things in life, there are pros and cons to every situation, and while the minimum wage increase would be a welcomed change, especially for those employees who could lift themselves out of poverty because of it, for employers, it could be an onerous financial burden to overcome. 

This is especially true for small family and mid-sized businesses trying to compete with large corporations.

"Some supermarket chains may have profit margins or cash reserves to raise the minimum wage," said Stan McClintock, Vice President of Sales, FMS Solutions. "However, small, independent grocers could be affected, especially those located in low-income and rural areas. The increase might also discourage independent grocers from potentially hiring younger workers because of their lack of experience, limited skill set, and short-term job commitment."

Even when minimum wage laws are different for each state, FMS Solutions suggests that independent grocers start crunching their numbers, reconcile their books to determine their current cash flow, and identify ways to cut back and even reevaluate their pricing strategy to navigate the increase in labor costs across the board.

To learn more about FMS Solutions, click here.

About FMS Solutions

FMS Solutions specializes in accounting solutions exclusively for the retail grocery industry. We offer retail accounting, time-sharing, and host services utilizing a general ledger-based system to integrate all financial applications fully.​

Source: FMS Solutions