The Ontario government’s recent increase of the minimum hourly wage — from $15.50 to $16.55 — was cause for celebration for many low-wage workers, but some small businesses are frustrated.
As they struggle to recover from the impacts of the COVID-19 lockdowns and inflation, some local businesses are hiring fewer people or limiting employee hours to manage the 6.8-per-cent wage boost.
Jackie Morphy, owner of the independent boutique All Eco, opened her shop in the Glebe four months before the first COVID-19 lockdown. During subsequent frequent and lengthy lockdowns, she said she incurred significant debt to keep her business alive.
“The amounts of the loans are disproportionate to the revenues the small businesses generate, and the increase in interest makes loans that much more expensive to carry,” Morphy wrote in an email. “Any increase in necessary expense[s] really hurts the bottom line.”
The minimum wage increase adds up to more in expenses than the $1.05 the workers see. Employers must also factor in additional employer contributions to CPP, EI and vacation pay, which Morphy said compounds the challenges her business is already facing.
“The road to recovery is that much longer and harder, if even possible,” she wrote.
The Canadian Federation of Independent Businesses, a non-profit advocacy group with more than 97,000 members, said in a press release that more than half of small businesses in Ontario continue to experience below-normal sales and are carrying an average of $100,000 in COVID-related debt.
“If they can’t afford to absorb [the] $1.05 minimum wage increase, they’ll be forced to make tough decisions, such as reducing employee hours, foregoing job-creating expansions, or turning down projects and other business opportunities,” the CFIB stated.
Morphy added she is “continually working on strategies to increase sales revenue,” and is reducing staff hours — now often only having one employee working instead of two or three — to compensate for the additional expense.
In addition to cost-reduction strategies, worker productivity can also be increased with additional training when a minimum wage increase is imposing significant cost pressure on a business, said Gordon Betcherman, professor emeritus at the School of International Development and Global Studies at uOttawa.
“If you have someone working in an administrative job at the minimum wage and suddenly you have to pay them [$1.05] more per hour, you could say, ‘Well, if I train this worker in some new IT skill, she’s going to come back and be more productive than before and the revenue you get from that additional productivity is going to more than cover the additional wage I have to pay her,’ ” Betcherman said.
For some small businesses with higher revenue streams, the recent wage increase does not impact operations.
“Our staff are all paid above minimum wage. We’re fortunate we can do it,” said Paul Shields, owner of Glebe Trotters on Bank Street. “We’re a busy store, we’ve been here 30 years and the staff have to really work their butts off.”
Betcherman added minimum wage increases are necessary to keep up with high inflation rates and increasing costs of living.
“If [workers] don’t get that increase, then their wage is actually continuing to become less and less in real terms, so it is letting them keep up with inflation, and that is an important feature,” he said.
The recent minimum wage increase is the third-highest annual jump Ontario has seen in the last 10 years, according to data provided by the federal government. The highest, in 2018, saw a 20.7-per-cent increase from $11.60 to $14. The second-highest was in 2022 when the province announced two separate increases — one in January and one in October — for a combined eight-per-cent increase to bring the minimum wage up to $15.50.
As the minimum wage has been increasing to match national inflation rates in recent years, many small businesses are struggling to adjust as inflation and wage increases threaten their longevity. [Graph © Natasha Baldin. Source: the Government of Canada and Rate Inflation]
Even with the recent increase, the provincial minimum wage sits about $3 per hour below Ottawa’s living wage of $19.60, as calculated by the Ontario Living Wage Network.
Catherine McDonald, a Carleton University student and part-time employee at a small franchise pizza restaurant Pi Co., will earn an extra $79 each month with the wage increase while working her usual 15 hours a week.
“A dollar really goes a long way when the cost of living has gone up so much,” she said.
In the current economic climate, Betcherman said there’s a continual balancing act between adjusting minimum wage to meet inflation and maximizing the longevity of small businesses.
For Morphy, additional increases in minimum wage and inflation could mean her business will have to close its doors permanently. She said the future of the business will be determined within the next 12 months.