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The ‘Domino Effect’ of the Minimum Wage Increase

Published April 09, 2018 (last updated December 3, 2020) -

1 April has seen the minimum wage increase by 75 cents to $16.50 an hour. As the largest minimum wage increase since 2008, it’s fair to say there will be an impact on small and medium businesses who pay at the current minimum wage.

Are you prepared?

With the minimum wage set to rise to $20 an hour by 2021, is your business prepared for the effects of this year’s increase? For bigger businesses with greater profit margins, the run on effect of the minimum wage increase is more manageable. It is small business owners who may feel the greatest impact.

Whilst not all employers will be required to increase employees’ wages, provided the rates currently paid are above the new minimum wage; in smaller businesses, the increase means you may have to move all employees up, not just those on the minimum wage.

The person that’s been with you for six months, that’s moved from a semi or unskilled role to a skilled role, is getting a higher hourly rate than the minimum wage, which is often used as a starting wage for most small businesses. By increasing the minimum, you may find you need to increase all your employee’s wages to maintain the benchmarks set for duration and skillset required at each level of the business. It’s not just those on minimum wage, it’s every employee that may expect to see the fair increase in wage based on the time they’ve been with you and their skill development.

How to cut costs

As small business owners, it is not necessarily possible to absorb the costs of increased wages, and is certainly not advised. This means you may be faced with some options: you can reduce staff, reduce hours, increase your own time at work, or increase your prices. Reducing hours or staff may work if the business can continue to run effectively on a smaller team – however it is important to review the employment agreements you have in place and seek advice before making any structural changes to ensure you’re not at risk of an unjustified dismissal claim.

Increasing prices is your other option. It’s recommended you remain open and honest with customers. Prices of services and products are raised so that you can continue to pay your staff fairly. This is a reasonable result of the domino effect of the minimum wage increase, and is likely to continue to this way as we progress towards 2021 and the projected $20 an hour minimum wage.

What are the new minimum wage rates?

Adult Minimum Wage – $16.50 Per Hour

This wage is the most commonly used by kiwi businesses and applies to all employees who are 16 years of age or older, with certain exceptions and exemptions.

Starting-Out Wage – $13.20 Per Hour

Workers aged 16-17 who are entering the workforce for the first time can be paid the starting out wage for six months, as can employees aged 18-19 who have been on a security benefit for six or more months.

Training Minimum Wage – $13.20 Per Hour

This category of wage applies to employees aged 20 years or over who are enrolled in an accredited industry training program requiring at least 60 credits a year.

Speak with an expert

Being fully aware of the wage increases is something that is vitally important to running a business. Employsure understands that this can be complex and is here to help.  Speak with an Employsure Specialist regarding the new minimum wage and how it affects your business today on 0800 568 012.

About Employsure

Employsure is one of New Zealand’s largest workplace relations advisers to small and medium businesses, with over 5,500 clients. We take the complexity out of workplace legislation to help small business employers protect their business and their people.

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