CFOs Expect Financial Hit From Potential Minimum Wage Increase

From WSJ: Various companies have said they support raising the federal minimum wage—albeit not as high as $15.

Finance chiefs are evaluating their options to offset potential higher costs as some lawmakers pursue legislation asking for an increase in the federal minimum wage to $15 an hour as part of a Covid-19 relief package.

President Biden has said he supports a plan to more than double the federal minimum wage from $7.25 to $15 over the course of four years. A higher wage floor would provide salary raises to essential workers during the coronavirus pandemic and elevate low-paid employees from poverty, according to Mr. Biden. The federal minimum wage last changed in 2009, when it rose from $6.55.

Democrats in the House and Senate are seeking to include the minimum-wage increase in the $1.9 trillion package currently under discussion, but the legislation faces opposition, including from Republicans, economists and members of Mr. Biden’s party.

Raising the federal minimum wage to $15 an hour by 2025 could deliver pay raises for 27 million workers and lift 900,000 Americans above the poverty threshold, the nonpartisan Congressional Budget Office estimated in a report on Monday. It also said the policy could cost 1.4 million Americans their jobs.

Various companies have said they support a federal minimum wage increase—albeit not as high as $15—and a phased-in approach that gives them time to prepare. Many businesses are paying a minimum wage of $7.25 or more in some states in which they operate, but a nationwide increase would require more extensive preparations.

Walmart Inc. and Starbucks Corp. in recent months announced plans to increase hourly wages to at least $15 for certain workers. Walmart in September said it was raising wages for 165,000 workers to between $15 and $30 an hour. Starbucks in December vowed to pay all of its roughly 230,000 U.S. employees at least $15 per hour over the next two to three years, up from more than 30% of workers who currently receive that amount.

Five Below Inc., a Philadelphia-based discount retailer, plans to respond to potentially higher labor costs in part by continuing to increase the number of employee-assisted self-check-out stations as opposed to traditional checkouts, allowing more transactions to be completed, Chief Financial Officer Ken Bull said Feb. 3. The company employs more than 15,000 people and operates about 1,020 stores.

An increase in the minimum wage could at the same time benefit the business because consumers might have more purchasing power, Mr. Bull said. “Maybe we get dinged from an expense perspective, but we see our sales go up because there’s more dollars in the economy,” he said.

Good Times Restaurants Inc., a Lakewood, Colo.-based operator of more than 60 burger-bar or fast-food locations, plans to raise prices of some menu options to offset a higher minimum wage, Ryan Zink, the company’s chief executive and principal financial officer, said Feb. 9.

The company is also considering investing in technology such as hand-held devices that would allow customers of Bad Daddy’s Burger Bar to place their own orders and pay their own checks without any staff involved, Mr. Zink said. “It will require change and for us to adapt our business model,” he said. Mr. Zink declined to comment on what the devices would cost.

If the wage increase doesn’t make it into the Covid-19 package, Mr. Biden is expected to push for additional legislation. Meanwhile, the 2022 elections could offer an opportunity for more states to put minimum-wage increases on the ballot. Eight states, most recently Florida, have approved an eventual increase to $15. Most states have set a minimum wage higher than $7.25 an hour, including a $13.69-an-hour rate in Washington state.

But not all companies may be able to get ahead of the game and offset higher minimum wages. Smaller retailers and restaurant chains would have fewer opportunities to compensate for higher labor costs, potentially accelerating their demise, said Diane Swonk, chief economist at professional-services firm Grant Thornton LLP.

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