BC Wage Increase Analysis

The impact on small business profitability

BC Wage Increase Analysis

The purpose of BC wage increase is to make housing more affordable in BC for those workers who are earning minimum wage. The cost of living in BC is ranked highest among other provinces. NDP government promised before the election to raise the minimum wages to $15 by 2021.

Province of BC increased the minimum wage to $13.85 on June 1, 2019. The hourly minimum wage is the same for adults and young people. Some professions have a separate minimum wage, such as liquor servers $12.70, piece-rate farm workers, resident caretakers, live-in camp leaders, and live-in home support workers.

Provincial Government also announced a further increase in wages to $14.60 an hour by June 1, 2020, represents little over 5% increase over the current rate. This increase applies to various sectors’ workers including liquor servers, live-in home support works, resident caretakers, and farm-workers.

As workers’ minimum wages will go up so will the cost of doing business of a small business owner in BC. This BC wage increase will result in lowering the profit for small businesses and to compensate this negative impact, small businesses either have to increase their product/service rates or lay-off their staff to stay competitive.

BC government also introduced the employer health tax legislation, so businesses with more than $500,000 payroll have to pay this additional tax. A business with multiple locations can easily fall in that category resulting in additional expenses or in some cases a loss due to higher wages and health payroll taxes.

To cut losses or improve the bottom line, business owners have to increase the prices which will ultimately be passed on to end-users. One of our client, who is in the restaurant industry expressed his concern as he owns multiple restaurants. According to a calculation, this BC wage increase will result in additional $100,000 + in their annual payroll cost which will not only lower their net profit but also they have to pay employer health tax which again will affect their bottom line.

According to the rules, if a business is associated with other B.C. corporations then $500,000 payroll exemption must be shared with other corporations. For example, if person A owns shares in Corporation X, Corporation Y, and Corporation Z then combined payroll amount will be used to calculation the annual exemption limit.

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