In Part One of this article, we laid out that the Federal government is moving to enact a $15 Minimum Wage law for all workers. If passed, this law will be implemented to raise the minimum wage gradually over the next four years. This change is significant because we are still feeling the negative effects of the Covid-19 pandemic in the national economy. In fact, we will continue to feel these negative effects as long as we are expected to wear safety masks.
This article explores options that you can implement to reduce your overall costs, improve productivity, and build a company that is scalable. I have written other articles on Transforming Your Business Post Covid-19; redefining customer service; and managing results, not workflow. This announcement of a $15 minimum wage reinforces the need for all of us to redefine our business strategies. This article should be considered a part of that strategy as we move beyond the Covid-19 pandemic.
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I believe that because of the changes we have seen with remote workers and the changes we will see with an increase in the minimum wage rate, we will see an explosion of workers who will move to Independent Contactor status within the next two years. Understand that the IRS has specific criteria to define and contrast an Independent Contractor who receives a fee and an employee who receives a paycheck. That means that you cannot decide who will be a contractor and who will be an employee without modifying their roles, responsibility, and authority.
While the IRS regulations are an immediate concern in transforming your company’s strategy, this issue will resolve itself over time. If you take a look at your local market, you will see that there are many people who work as Independent Contractors now. There are personal shoppers (for executives who lack the time to buy family gifts), concierge-level haberdasheries where a personal assistant will fit you, order clothes for you, and delivery the completed order to your home or office. There are Virtual Assistants who replace secretaries, office assistants, or telephone receptionists. And, there are virtual bookkeepers, payroll se
rvices, and web designers. All of these services are offered through Independent Contractors so that you can remove the need for ongoing salaries at any rate. In many cases, the cost of this service is less than the wages of a full time worker at the current minimum wage of $7.25 per hour.
Once the government moves to enact a $15 minimum hourly wage (as the trend continues in six states so far), companies may see the value of hiring Independent Contractors at much lower rates than full-time or permanent workers.
I believe that a high minimum wage creates opportunities for many workers to create their own businesses once they begin offering specific services on a project basis. Consider how the outsource model works. You hire a company to clean your office, calculate your payroll, design your website, or sell products on a community website (i.e., Amazon, EBAY, et.al.) for a fixed fee per cycle. If you want more cycles, you pay more, and vice versa for fewer cycles.
The main difference between the outsourcing model and the use of Independent Contractors, is that you will negotiate with individuals instead of large companies to define the work, identify the cycles and deliverables, and monitor the results. Under this model, you pay for results, not time. Again, you pay for productivity, not process. Once that concept sinks into your culture, you will see a direct link between costs, productivity, and profit.
From your time with remote workers during the Covid-19 shut-downs, you have seen that work can be performed offsite and away from the main office. You have also seen that when work results are not measured, you begin to see a decline in productivity, workers become less motivated, and stress builds between all parties.
The transformation to Independent Contractor status accomplishes the following:
- You can eliminate on-site managers and hire a few project leaders. The project leaders review the Independent Contractor’s work performance, schedule of deliverables, and comparison of work product to the approved scope of work. Project leaders can work from home or from a shared on-site office on alternative days.
- When you eliminate staff positions, you shift and reduce the internal cost of salaries and related costs to the Independent Contractor. These costs include payroll tax; benefits; office space; and the use and maintenance of shared equipment (computers, telephones, printers paper, file storage, etc.). Often this means that you company reduces its overall expenses.
- You significantly reduce the need for staff training, staff motivation programs, vacation and sick pay, and staff evaluations. Again, this reduces overhead and creates higher profit for the same level of sales.
- Most importantly, you allow each worker to self-actualize to their full potential as an Independent Contractor. For years, we have heard that Millennials want freedom of choice. They want to work flexible hours. They want flexible work locations. They want to use the latest technology. They want authority. They want to matter and they want their work to be noticed. The simple truth is that everyone holds these same feelings. The Millennials have vocalized this sentiment, but the feelings are not new. Independent Contractors are free to accomplish all of these goals, and thus to define, redefine, and re-create their services to match their abilities and market demands.
Once any worker transforms to an Independent Contractor, that person is free to define every part of their income stream. They can work fulltime or part-time. They can take a sabbatical at any time. They can plan multiple vacations throughout the year. They can take care of family members at home while they work. Over time, they can also modify the work that they offer as they gain skills in new areas of business.
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So, what does all of this mean? Like all changes, this transformation will not be immediate. Change will occur as the company “feels the pain” of hiring low skilled staff. The pain will be reduced profit and limited cash flow available to grow. There is minimal change required for workers who earn more than $15 per hour. However, due to the higher cost of labor caused by the $15 minimum wage, promotions will be moderated. Therefore, salary increases will slow or stop in the immediate future.
Once this transformation begins, many companies will continue to employ some staff. The migration to hire Independent Contractors will focus on projects, as opposed to ongoing or daily activity. However, as this model takes hold, many other jobs will be re-defined as projects so that Independent Contractors can replace full time workers. The employees who will be retained will be well-trained, decision-makers, such as project leaders, senior managers, and high-ranking officers.
If all of this is overwhelming, give us a call. We are happy to discuss this and other goals that you have confidentially and with no obligation. We charge no fees until you agree to a specific scope of work and fee arrangement. Therefore, you are free to contact us, talk to us about your business and your needs, and determine when, if, and how you would like to continue the work.
Give us a call at (504) 780-9091. Send us an E-mail at Richard@ramcpa.com. Visit our website at www.ramcpa.com to learn more about the value we offer. But whatever you do, do not ignore the market trends, and do not wait for a solution to appear on your doorstep. You are in charge of your success. We can help you get from where you are today, to where you want to be tomorrow. Call us today and eliminate any delays in your ultimate success.