Will Higher Minimum Wages Equate to Lower Profits?

A major topic of debate among all small business owners these days is an increase of the federal minimum wage. In January, the Minimum Wage Act of 2007 was passed in the House of Representatives, raising the minimum wage from $5.15 per hour to $7.25 per hour - the first hike in the minimum wage since 1996, when it was raised from $4.25 to $5.15.

Proponents say the increase is a long-overdue raise for many hard-working Americans. Opponents say small businesses will take a hit, as they're forced to raise prices, cut jobs and slash hours.

Since many collision repair shops are small businesses, we wanted to find out how it might impact the market. Several leaders interviewed by ABRN aren't overly concerned, considering that most collision repair employees are highly trained specialists who already earn much more than the minimum wage.

On the other hand, there are entry-level positions in the industry (janitorial, porters, car washers, detailers, etc.), and some believe minimum wage increases could impact bottom line profits as a result of extra expenses.

Will it have an impact?

According to SurePayroll, an online payroll service provider for small businesses, 91 percent of small business owners are not affected by minimum wage laws because they pay their employees more than the minimum wage, a sentiment shared by many in the collision repair industry.

"Generally, most employees in our collective industries are skilled laborers and not assembly-line-type workers. So I think that our industry generally pays more than the minimum wage," says David Gold, owner of Standard Auto Wreckers in Scarborough, Ontario, and member of the Automotive Recyclers Association (ARA).

Besides auto technicians being paid well over the minimum wage, many others in the collision repair industry are paid enhanced wages, if for no other reason than to stay competitive.

"I don't see how it could impact the industry," says March Taylor, owner of Auto Body Hawaii. "In order to get potential applicants' attention we have to be competitive with the likes of Starbucks; we start our [entry-level] people at an unbelievable $12 per hour."

Chuck Sulkala, executive director of the National Auto Body Council (NABC) adds, "I suspect that the bill will have little or no effect on the collision industry. We have a hard enough time getting people with no experience for cleanup and other jobs. We have to pay a premium anyway, and that premium could be up to 50 percent over the minimum wage."

Still, many small businesses operate on thin profit margins as it is, and any increase in starting wages could force difficult staffing and pricing decisions. Add that small increase to higher energy prices and health care premiums, and small businesses have another cost increase that could erode their profits.

"The higher minimum wage will impact detailers, porters, etc., which would just further increase our expenses and reduce our potential net profit," says Dan Risley, executive director of the Society of Collision Repair Specialists (SCRS). "Any time you increase costs, it will have an impact on the bottom line, but I doubt it will be a large enough affect to cause repairers concern."

Something to consider, however, is the ripple effect that an increase could cause: those who today are earning what will be minimum wage after the legislation is passed will want increases as well.

"Personally if I were a detailer making minimum wage, I would be looking for a new job," says Ron Reiling, AAM, executive director of the Alliance of Automotive Service Providers of Missouri (AASP-Missouri). "A detailer is a skilled position and is the person that makes sure every detail is taken care of before delivery of the vehicle." He doubts there are many detailers earning minimum wage.

While a minimum-wage hike may not impact profits and wages in collision repair facilities, an increase could make it harder to find new employees.

Think about prospective employees who can find an "easier" job than working in your shop. If a young person can earn the same wage working at the local mall, rather than cleaning a shop or washing cars, they may opt for the easier path. And that could take a toll on the collision repair industry.