Does your Seattle small business have employees currently earning less than $15 an hour? Then you may be struggling to understand the cost increases you’ll likely incur under the Seattle $15 Minimum Wage Initiative.
Here are 4 Accounting & Bookkeeping Items you can look at in your Seattle small business to help better understand and prepare for your increasing costs.
Item 1: A Raise For Some…or For All?
Your payroll reports should help you gather a solid understanding of the wage rates your hourly employees are earning. The employee making $10 an hour is getting a raise to $15 by law, but what about the employee next to him who was already making $15 an hour – does she get a raise as well?
Having a good understanding of employee pay will help you formulate a crucial conversation plan. A situation where some employees receive raises while others don’t could seriously impact morale internally and lead to turnover – which can be more costly than a raise for all would have been.
Tip: Whether you’re giving additional raises to employees earning $15+ per hour or not, be prepared to have a conversation. You can be assured your employees will be ready.
Item 2: Employer Payroll Taxes (Part I)
Remember, not only is the wage of the employee increasing but so are your employer taxes [particularly your FICA Taxes (Social Security and Medicare) and your Employment Security Taxes (WA State Unemployment)].
Here’s what an employer’s share of FICA taxes (remember, this is in addition to the hourly wage paid to the employee) look like when comparing a $10 per hour wage to a $15 per hour wage.
7.65% (FICA) x $10 = Approx. $.77
7.65% (FICA) x $15 = Approx. $1.15
$1.15-$.77 = $.38 increase in FICA taxes per hour for this employee, in this situation
Tip: Sit down and do some math, or work with your accountant. Get a grip on your numbers so you can better understand how to financially adjust to this increase and not be surprised by it.
Item 3: Employer Payroll Taxes (Part II)
Employment Securities Tax (otherwise known as State Unemployment Tax):
The taxable wage base (how much you pay ES Tax on) per employee is $41,300 for 2014 – which means you pay an assigned percentage tax (assigned rates can differ by business) on wages up to $41,300 for each employee.
An employee earning $15 an hour working 40 hours a week for 50 weeks a year earns $30,000, meaning the entirety of their wages are subject to this tax.
We’ll use an average rate of 4% for an Employment Securities tax rate in this example (rates can range from .17% to 7.85%) and 50 weeks (52 weeks – 2 weeks unpaid vacation):
$10 X 40 hours X 50 weeks = $20,000 annually X (4%) = $800
$15 X 40 hours X 50 weeks = $30,000 annually X (4%) = $1200
That’s an annual increase of $400 for this employee, in this instance.
Tip: There are ways to lower your Employment Securities Tax Rate. Be sure to read up on and execute on the steps necessary to keep this adjustable tax rate as low as possible.
Item 4: Cash Flow
You’re not on an island with this initiative – it applies to all businesses in Seattle. As such, some businesses are going to be experiencing rising internal costs as well, which may force your Seattle vendors to increase their prices. All of these rising costs can impact your cash flow, and make certain times during the month (like payroll week) more difficult to pay the bills.
Tip: Review with your vendors to see if there’s an option to adjust your payment date if necessary. Some vendors are flexible for those clients and customers who pay their bills. So perhaps instead of payment due on the 5th, a payment date for you on the 15th may work better for your cash flow.
Over the course of time small businesses are impacted by many major events: the gain or loss of a big client, economic factors, government initiatives, and more. With the proper planning and strong bookkeeping and accounting, you can prepare your business and your team for success through times of change.
Nth Degree CPAs is a boutique, high-value accounting firm in Seattle, WA that provides integrated tax planning and preparation with accounting and controller-level financial guidance for the small business community. Online at www.nthdegreecpas.com