How small-business owners can prepare for a potential minimum wage increase in Pa.

The Pennsylvania House of Representatives last week voted to increase the state’s minimum wage to $15 per hour by 2026. Workers who get a substantial portion of their compensation from tips would earn 60% of the minimum as their base pay. The wage would then be adjusted based on inflation beginning in 2027.

Supporters of the bill say that an increase in the minimum wage, currently at the federally mandated $7.25 per hour, is long overdue and that the added compensation would not only benefit employees but also help attract more hourly workers to businesses in these times of tight labor. Opponents say that these added costs will have the opposite effect.

» READ MORE: Pa. House votes to raise state minimum wage to $15 an hour by 2026

“On average, a tipped employee earns anywhere between $27 and $41.50 per hour with some reporting significantly higher hourly wages,” said Joe Massaro, president and CEO of the Pennsylvania Restaurant & Lodging Association. “Adapting to a change in the tipped wage system will likely lead to increased menu prices, the addition of service charges, a switch to automation, and reduced hours and employees, all of which will negatively affect the earning potential of tipped employees.”

The likelihood of the legislation passing the Republican-controlled Pennsylvania Senate is slim. Kate Flessner, a state Senate GOP spokesperson, said in an email earlier this spring that the caucus is “focused on implementing policies that will create maximum wage jobs” rather than through “artificial minimum wage increases.”

But anything can happen in an election year and local businesses should be preparing. Other than increasing prices to make up the difference, what steps can be taken to offset this potential new cost? Here are a few to consider.

Did you know that a bag of Doritos now has less chips but costs the same? Or that Burger King now includes only eight chicken nuggets in an order instead of 10? It’s called shrinkflation — a practice of selling a little bit less of something but for the same price — and many of our biggest and most trusted brands are doing it. When there’s an increase in labor, many businesses protect their margins by decreasing the materials that are included in their products without increasing prices, and this could be a strategy that works for your business.

Many businesses, when faced with rising wages, take a harder look at the value of the work being done by their employees. They ask: Is everything necessary? Is it just busy work? Is the work being done truly vital to the business? Can customers still be serviced satisfactorily? Wage increases force businesses to scrutinize these things. This may mean providing fewer services or delaying response times. But if your business can absorb these changes without upsetting customers, it may be worth considering.

When one cost goes up, smart managers look for other costs that can be reduced as an offset. Practicing shrinkflation can have an impact on materials costs. But how about overhead? Are there some expenses that can be renegotiated or can some vendors be replaced? Have you challenged the providers of your technology, internet, utilities, and accounting services to see where dollars can be cut? Can some employee benefits — paid time off, health insurance, retirement plan contributions — be curtailed slightly? Just a little bit of savings in any of these areas can make up the difference in increased hourly wages.

Upgrading your point-of-sale system or implementing kiosks and self-pay tablets to encourage customers to complete transactions on their own without employees spending time is one way to potentially squeeze more productivity out of your existing staff. Replacing your machinery and internal equipment can perhaps process orders faster and with less labor time needed. Grilling your existing software providers about how they’re using artificial intelligence tools to increase productivity can eliminate added hours. Of course, all of this requires capital, but my smartest clients evaluate the return on that investment over time to determine profitability.

An income statement isn’t just about cost; it’s also about revenue. So one way to offset a rise in labor costs is to simply generate more revenue. Maybe that’s easier said than done. But legislative changes like an increase in minimum wages can encourage a greater focus on your marketing and maybe inspire you to come up with more ways to sell more products and services in order to maintain — and even grow — your profits.

Over the past decade some academic studies have shown that workers actually lose money and benefits like health insurance when mandated minimum wages are increased. But other studies found that such increases did not harm job growth and, in fact, employers actually added workers as a result of higher minimum wages. A group of researchers from the University of Chicago couldn’t confirm or deny the consequences of an increase in the minimum wage, basically throwing up their hands and admitting “it’s nuanced.”

Regardless of where you stand on the issue, the fact is that more than half the states in this country are mandating a minimum wage higher than the federal $7.25 per hour, and businesses are finding ways to carry on. That’s likely because they’re implementing some of the strategies I’ve listed above.

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