Minimum wage hike would mean ‘big hit’ for employers: Experts

Ontario pushing for $15 base rate by 2019
By Marcel Vander Wier
|Canadian HR Reporter|Last Updated: 07/11/2017

Ontario organizations will be hard-pressed to find any positive ramifications in proposed legislative changes raising minimum wage in the province, according to experts.

In May, Premier Kathleen Wynne proposed the largest increase to minimum wage in provincial history, raising it from its current rate of $11.40 per hour to $14 as of 2018 and $15 in 2019, followed by annual increases indexed to inflation.  Lesser wages will remain for students ($14.10) and liquor servers ($13.05) as of 2019.

Lauding the move as one that will create better jobs and fair workplaces, Wynne said the pay bump will affect more than 25 per cent of the province’s workers.

“Millions of workers in Ontario are finding it almost impossible to support their families on a minimum wage that just doesn’t go far enough,” she said. “It’s time this rate reflected the reality of people’s lives. Raising the minimum wage is about creating a fairer, more equal society where everyone gets to share in our province’s economic growth.”

Raising the minimum wage through Bill 148: Fair Workplaces, Better Jobs Act will help employers by improving productivity, increasing employee retention and boosting the purchasing power of workers, said Wynne.

With the move, Ontario follows in the footsteps of Alberta, which last year announced it would adopt a $15 minimum wage by Oct. 1, 2018.

However, many other provincial minimum wages remain at $11 or lower.

Alongside a bump in minimum wage, Ontario employers will soon be required to pay part-time workers compensation equal to full-time for similar work, and businesses will also be on the hook for three hours’ pay to employees whose shifts are cancelled without at least 48 hours’ advance notice.

The legislative announcements followed the release of Ontario’s Changing Workplaces Review.

‘A big hit’

The news of the potential wage hike took employers by complete surprise, said Julie Kwiecinski,
director of provincial affairs for Ontario at the Canadian Federation of Independent Business (CFIB), which represents 42,000 small and medium-sized businesses.

“We were taken totally off-guard. We were broadsided on this,” she said. “We were shocked, appalled and crestfallen. I don’t know how else to put it.”

The last minimum wage increase of 20 cents, she said, was in March, as announced by Labour Minister Kevin Flynn: “By ensuring that our province follows a consistent, predictable and impartial process of increasing the minimum wage, we are providing a more stable environment for businesses and more money in the pockets of our workers.”

Minimum wage will rise again to $11.60 as of October this year, prior to a more significant bump on Jan. 1, 2018.

The shift in policy spells trouble for small business in Ontario, with wages increasing alongside Canadian Pension Plan (CPP) costs, employment insurance (EI) rates, as well as cap-and-trade and provincial hydro prices, said Kwiecinski.

“You’re looking at a 32-per-cent increase in the minimum wage in only 18 months,” she said. “I don’t think government realizes the impact.”

This policy move will increase costs and have adverse effects for the very people the government wants to help — “the most vulnerable and least skilled in our population, because they’re the ones that are going to get their hours scaled back first,” said Charles Lammam, director of fiscal studies at the Fraser Institute in Vancouver.

The legislated wage increases could cause a reduction in working hours or jobs, and could very likely raise costs for consumers, he said.

“Because the wage hike is driven by government decree and not underlying fundamentals, governments are forcing higher payments without commissary increases in productivity,” said Lammam.

“That is what ultimately could make it very difficult to adjust. The Ontario government is intimately aware of what the evidence says, and it has chosen to ignore it.”

For most companies, payroll signifies as much as 80 per cent of total costs, said Janet Candido, a human resources strategist in Toronto.

“This is a big hit for them,” she said.

And while pay raises will be necessary for low-level employees, second-tier workers may require wage bumps as well.

“The basis of how you pay people is the worth of the job to the organization,” said Candido. “That’s a pretty blunt statement, but that’s ultimately what it is. What is your job worth to the organization?… If you’re making more money, it means you’re providing more worth to the organization.”

Research varies

Not all experts view the changes as negative, however.

An increase in precarious work in the province has been at the heart of several legislative alterations to employment standards, said Sheila Block, senior economist at the Canadian Centre for Policy Alternatives’ Ontario office.

“What we are seeing in this legislation are some changes that will move the dial and provide the legislative framework for a decrease in income inequality in Ontario — and a reduction in poverty,” she said.

The decision is one of several needed to bring laws up to speed with the economic changes that have occurred over the past two decades, according to Block.

“There’s been a shift away from the standard employment relationship where people had an employer for a lifetime,” she said.

“The economy has shifted. The way business is organized has changed very much. This is catching up.”

Doomsday scenarios predicting mass job losses aren’t accurate, if Alberta’s recent results are any indication, said Block.

“We haven’t seen the reductions in employment that had been feared.”

But the fact that Alberta is phasing in its wage hike over a longer time frame makes it a totally different scenario, said Lammam.

“The adverse effects can be magnified when governments raise the minimum wage quickly,” he said. “There’s little opportunity to adjust.”

And this won’t be the last of the $15 minimum wage in Canada, said Block.

“I absolutely think that other jurisdictions will follow suit,” she said. “It is a move to decrease inequality that is asking employers to do their part in reducing it.”

Workers’ rights activists in British Columbia, Quebec, New Brunswick and Nova Scotia have each launched campaigns calling on their governments to adopt a $15 minimum wage.

In Quebec, proponents of the hike continue to campaign despite the provincial government’s recent rejection of the idea in favour of a four-year plan to gradually push the rate from $10.75 to $12.45 by 2020.

The government began the phase-in on May 1 by raising the general minimum wage rate to $11.25 an hour.

Quebec Labour Minister Dominique Vien said the phased-in minimum wage hike will eventually put workers’ base rate at 50 per cent of the average wage in the province.

Advice for HR

Companies should plan ahead to assess the magnitude of the impact and effectively absorb the costs, said Candido. As the wage rises, so too will payroll taxes, CPP, EI and other benefit costs.

“It’s up to the HR professional to guide the company through,” she said. “The business owner, by and large, is not the one who is going to be doing the detail.”

A holistic review of compensation policies may be required, and a new pay grid should be established. Communication will be paramount throughout the process, in terms of how the company addresses the legislation, said Candido.

“I always feel you should tell people as much as you possibly can, as soon as you can.”

Employers with a “high-road, high-wage strategy” already in place are at a competitive advantage, as increased pay means less turnover cost, lower training budgets, and increased revenue as better-paid employees typically provide higher quality service, said Block.

“What I think employers should keep in mind is that they are actually very resilient and know how to maintain profitability,” she said. “Businesses — as they have historically — will adjust.”

“Government is sending a very strong signal to employers that they’re going to have to up their game. They’re going to have to be more innovative and they will no longer be able to rely on a low-wage strategy for their profitability. I think that’s going to increase productivity and generally be a positive.”

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