To pay more than minimum wage or not to pay more than minimum wage?
That can be a common question for small business owners as they’re looking to add new employees to their team, but are nervous about straining their company’s wallet. According to the recent Small Business Success Study, 81% of small business owners do decide to go above and beyond when it comes to wages.
Why do so many feel it’s important for their business to pay more? Experts and authors Rieva Lesonsky (Start Your Own Business), Eric Tyson (Small Business for Dummies), and Barbara Weltman (Small Business Survival Book) helped provide us with five important reasons why paying more than minimum wage is good for your business. Here they are:
1. It’s Good Advertising
Small businesses and their owners are often deeply rooted in their local communities. Communities, where word-of-mouth can become one of the most effective means of advertising. It can often make or break a company. In short: you want people saying good things about you. Paying employees more than minimum wage is one way of doing that, because—as Rieva Lesonsky says—“if you are a business owner, you are trying to do business with everyone in the community… How you treat your employees is going to impact how people are going to think about you.” Why? Well, Lesonsky explains further, “Your employees don’t exist in vacuums. They all have friends, they all have family.”
Which is to say, word can spread very, very fast. Take this example of Bears Smokehouse in Hartford, CT. When the owners decided to raise employee wages, they received a huge amount of positive,free press.
So, if your community hears you treat—and pay-people well, they’ll be more inclined to come to you with their business.
2. It Gets You Great Workers
Without fail, every single author used that adage we’ve all heard before: “You get what you pay for.” Paying more money gets you better workers, and as a small business owner, Lesonsky says, “if you’re going to make a commitment to grow your business, you have to hire the best people that you can afford.”
That, to her, doesn’t mean worrying about if you’re paying too much if you’re paying more than minimum wage. Eric Tyson supports her in that, stressing that penny pinching isn’t going to help you in the long run. “You might think ‘Wow, I’m really smart. I figured out how to save $2 to $4 dollars an hour’ … but it may be you’re ending up with employees who are less productive and less committed to the work.” You could wind up not getting the kind of worker that will “provide the quality of service, or expertise, that you want,” Tyson says. At the end of the day you want people who, as Lesonsky puts it, “can help take your business to the next level.” Paying more than minimum wage can help you get those kinds of workers.
3. It’s the Reality of Doing Good Business
It’s not rocket science to point out that businesses come with expenses. There are just certain realities small business owners have to contend with. To Tyson, paying more than minimum wage is just one of the fundamental realities of running a successful business. He explains that, “the vast majority of the time when a small business owner is hiring somebody to perform a job, they’re going to end up paying more than the minimum wage because that’s what the market will demand.” For a company to thrive, it has to compete against other companies. That includes competing with how they compensate. Otherwise, “if you’re not paying somebody the market rate for their job, in time they’re going to figure that out, and they’re going to end up going somewhere else.” Losing and constantly having to recruit new employees? That’s bad for business. As Barbara Weltman drives home, having “greater offerings than your competitors” can give your business that little bit of edge. And getting whatever edge you can in your market isn’t just another reality of doing business, it’s good for business.
4. It’s Good for Team Loyalty & Retention
Retention is one of the biggest challenges that companies—both big and small—face these days. Millennials in particular are known to be willing to switch jobs at the slightest hint of dissatisfaction. How do you combat that? Keeping your employees happy. Now, money isn’t everything, of course. But it’s still a big factor. Which is why paying more than minimum wage is important for team retention. It’s also vital for team loyalty.
As Weltman explains, “when workers know they’re getting more than is otherwise required, they develop a loyalty to the company.” Loyalty leads to greater passion and motivation. That leads to even greater work, which is the cornerstone of a thriving business. Not paying more than minimum wage has the risk of sabotaging that. Lesonsky explains: “Somebody who is making minimum wage is always going to have their eye out for the next job that’s going to pay them more. So you’re just undermining employee’s loyalty right off the bat.” Pay more than a minimum wage and you’ll help ensure that your employees loyalty is earned and will keep them from wanting to do their best work for anyone else but you.
5. It’s Good for Your Community and the Economy
You know what helps a business? A prospering local or national economy. You, as a small business owner, can contribute to that by paying more than minimum wage. As Lesonsky, a self-professed believer in bottom-up economics, puts it: “If you’re paying people more money, they take that money and go out and spend it in the community. When they spend it in the community, companies have more business. At some point they need to hire more people. Those people now have more money. They go out and spend it in the community.” Including, most likely, your company.
In other words, what you pay into your community via your employees, trickles out and up. Eventually it then finds its way back you. With dividends.
Next Steps: Imagine a world where your employees show up on time, work smart and deliver results for your small business day in and day out. Not there yet? Sign up for the weekly Small Biz Ahead Newsletter and we’ll send you the best science-backed strategies on managing productive, happy employees—including tips on how to get them to show up on time!