Wednesday, 20th February, 2019

From time-to-time we need to do things we don’t like, but recognise that it is good for us. Changes to the minimum wage over the next four years from $17.70 per hour this year to a predicted $20.00 by 2020 may well fall into this category.

After talking to our members over the past few weeks several have mentioned that they are worried how their business can absorb a significant hike in their wage costs over the next four years, but most recognise the impact that low wages are having on their staff.

When asked how they think they may cope with these changes, several have suggested the only way they can absorb this cost is to lift prices to consumers. Some will not replace staff when they leave. Bigger employers may finally install robotic/technology-based alternatives to people-based service, the wage raise finally justifying the investment in the technology. Many will try to push the cost onto suppliers or landlords, negotiating for better deals, pushing harder for better prices, all of which will transfer those costs to other businesses, facing the same wage or compliance pressures.

Most worryingly many have not considered how they are going to address the desire for staff in the $20.00 to $25.00 per hour pay band to be paid proportionally-higher than their lower-paid colleagues.

All these issues were not ignored by government in their planning.

The policy folk at MBIE advised the Minister for Workplace Relations and Safety in November 2018 that “the cost of wage increases in 2019 (of approximately $231 million) will fall to employers. The increased cost may then be passed onto customers through rising prices, as employers seek to maintain a profit.” They also warned that the approximately $231 million worth of new labour costs felt by businesses, will also be felt by government with a fiscal cost of $93 million.

The government also acknowledges that you may choose to restructure your business and have less staff. They say that as a result of the 2019 changes between 5000 and 9000 jobs may be lost, and these may affect young people, Maori and low-skilled workers disproportionately. A forecast growth of jobs in 2019 of nearly 57,000 will off-set this. More worryingly however, the indicate that the minimum wage rise may have a “ripple effect” due to wages above the minimum wage also increasing faster than expected income growth. They warn that this has “the potential to have a larger impact on employment, and the economy-wide wage bill”. They say the extent to which this might occur is not possible to quantify.

Along with the changes to the minimum wage, the imminent changes to the Employment Relations Amendment Act 2018, mean that your obligations as an employer, whether in a unionised or non-unionised environment have changed. This starts in May.

So where does this leave you and your business? Well, one thing we all know doesn’t work is ignoring it. But that is what most of us are currently doing. Most businesses who have a sizable chunk of their workforce earning less than $26.00-ish per hour currently should be considering their labour strategy and how you might respond in the next 4 years. Business as usual isn’t going to cut it, unless you are happy to lose any surplus you are making!

The Chamber’s training and education planning will be focussing on how we can help meet these work force challenges. Start by attending some of our learning opportunities. An overview of changes to the Act is being held this Thursday at 21st at 10.30. Click here for details. I look forward to seeing you there.

From an advocacy perspective, I am currently responding to MBIE’s review of regional workforce planning and employer-assisted work visas. We have MBIE policy makers in town on the February 27th at 10.30 am for a consultation meeting to help employers understand how the proposed changes may impact on their business. I am particularly concerned about how this might impact on small businesses (or those without dedicated HR resource) and invite you to give me a call if you wish to be part of this consultation.

Big thanks to those members who have made time for me over the past few weeks, generously sharing their thoughts on their business and this unique trading environment.

Happy trading.

I have used the MBIE Regulatory Impact Statement on the Minimum Wage 2019 published in November 2018 to write this piece. You can find it on their website here.