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How do we manage this pay rise?

See case study provided today by a service station owner here.

COSBOA notes that today the Fair Work Commission made a decision to raise the minimum wage by 3%. CPI rose by 1.3% in the year ending in March 2019. This pay rise is therefore more than double inflation.

This continues the trend of pay rises being above CPI. In 2017 the increase in pay was 3.3% (CPI 2.1%) and in 2018 3.5% (CPI 1.9%). This is an increase of 9.8% over three years, while CPI (inflation) rose just 5.3%.

Peter Strong, CEO of COSBOA today stated “We understand that people on low wages want more money — of course they do. They are now consistently receiving pay rises above inflation and are better off as a result. We also know that the people who have to pay this increase are in the main small business employers, who have also had to deal with other changes including increases in penalty rates, changes to casual and other employment provisions, rising energy costs, and more.”

COSBOA members are aware that small business employers will have to either absorb this pay increase, cut the hours of their staff, or increase the prices of their services and products. Wage rises can only be absorbed if there are productivity gains; otherwise it is the small business family that pays for the rise. Decreasing work hours cancels out the positive impact of a pay rise, and increasing prices of goods and services adds to inflation.

Mr Strong added “Another concern is that small businesses with very low margins will be disproportionately impacted by this rise. These include small supermarkets, service stations, bookshops, shoe shops and many businesses in the hospitality sector. Let’s hope that the economy can continue to be healthy so that these types of cost increases are not detrimental to small businesses and therefore to our future.”

Mr Strong further added “This decision also reinforces the need to leave pay decisions to the Fair Work Commission and not to the union movement — or to employers, for that matter. It debunks the myth that wages have been stagnant while other costs are rising. This will hopefully put to rest the rubbish story of a ‘jobs crisis’ as espoused by the unions during the election campaign.”

Comments from an owner of a service station in regional NSW

“This minimum wage rise is not good. I would almost call it economically reckless. By my calculations this will add between $8 to $10k per year to an average site. That’s over $52 million in additional labour costs for the retail side of the industry alone. Or somewhere close to half a cent a litre. All this at the low end of the calculations.

At a time when the overall economy is weak, and we have very low inflation or, if we see no strong retail recovery DEFLATION, this is not the right move.

More specifically, in our industry we are starting to see margins decline and the drought is still impacting the more regional nature of many members.

In addition, as a single site operator in regional NSW, I now have to take action to recover this cost increase from June 30.

For my business, which is in a highly competitive market where I am a price taker, I cannot recover this on the price board. I have already planned to change my roster, which in this case means I will ask my manager, on salary, to be more productive. But I will also be putting off one casual, whose wages are around $10k per year. This casual is a young man, 19 years old, who I gave his first job out of high school.”

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