Congratulations Ontario workers, Premier Kathleen Wynne just gave you a raise. To the small business owners, your payroll costs just skyrocketed.
However Ontario workers, before you go out and splurge, you should know that you are now in a higher tax bracket.
That means more payroll remittances like CPP, EI and Income Tax will be taken off your paycheque. Your new “raise” just went into the pockets of Justin Trudeau and Kathleen Wynne.
Raise in Prices
Now that Ontario workers have their raise, business owners must now either raise prices, cut hours and benefits or both.
Most Ontario businesses have cut staff benefits and paid breaks to cover the cost of the new higher minimum wage. Some people have even protested businesses that cut benefits and hours.
The reality is, those businesses didn’t have much of a choice, other than go out of business.
Before the raise, let’s assume an employee was getting $11.60 per hour and an average of 25 hours per week.
The paycheque would look like:
Gross Pay $290
Less: Federal Tax $ 3.61
CPP Deductions $ 11.02
EI Deductions $ 4.81
Total Deductions $19.44
Total Net Pay $270.56
After the raise, the same amount of hours but at $14, the paycheque would look like:
Gross Pay $350
Less: Federal Tax $ 12.02
Provincial Tax $ 4.05
CPP Deductions $ 13.99
EI Deductions $ 5.81
Total Deductions $35.87
Total Pay $314.13
Total increase: $314.13-$270.56= $43.57
After the increase in pay, workers are really only taking home an additional $43.57 on average! As you can see from the above illustration, most of that new raise went to taxes and other deductions the government demands the employer take off your paycheque.
Payroll is the biggest expense for any employer.
Since this is the biggest expense, expect employers to cut staff to the bare minimum. That also means less hours for staff which results in a lower paycheque.
The $14 per hour minimum wage was intended to help low wage workers, but in the end it will hurt them even more. Call it the law of unintended consequences.
Not meant to be a Career
Right now, workers’ groups are complaining about being paid low wages for a low skilled job. The truth of the matter is, these wage jobs were not meant to be careers.
Minimum wage jobs are for low skilled positions which fit the description of minimum wage.
It is excellent for high school or college students who need work experience while earning some money.
Bring on Automation
Now that we have a higher minimum wage in Ontario, a lot of businesses have adopted automation to limit the amount of money paid for minimum wage staff.
McDonald’s anticipated this since the summer of 2016, and has since installed order boards to take your order. Thus reducing the amount it staff it needs to run its restaurants.
Other businesses have embraced self-checkout to a lesser extent before the $14 per hour raise, now it looks like there will be even more.
It looks like the floodgates to more automation is on its way thanks to the new higher minimum wage. Businesses that can’t raise prices, will certainly either cut hours or staff or both.
So, what happened to my raise?
Mathew Jazenko is owner of MRJ Financial Solutions. Call Mathew today to get help with your payroll needs. 289-500-1978 email@example.com