When politics trumps economics

On April 1, 2017 the minimum wage in Newfoundland and Labrador increased by 25 cents. It will increase by the same amount in October, meaning that by the end of 2017 the minimum wage in the province will be $11 per hour.

The government has been holding consultations on how best to establish future increases to the minimum wage. As part of those consultations, CFIB made a submission representing the views of business owners in the province.

Employers have been telling us that a higher minimum wage will lead to reduced hours of staff, increased prices, and a reduction in hiring, amongst other consequences. As a result of this year’s increases, annual labour costs could grow by $1,000 per employee.

Effect of Minimum Wage Increases on Employers
Minimum Wage$7.50$10.00$10.50$11.00
CPP Contribution$599.04$856.44$907.92$959.40
EI Contribution$393.12$503.78$574.76$521.98
WorkplaceNL Contribution$414.96$517.92$329.78$313.46
Total Contributions$1,407.12$1,878.14$1,812.46$1794.83
Total Cost to Employers$17,007.12$22,678.14$23,652.46$24,674.83

The annual minimum wage is calculated for a 40-hour work week. Canada Pension Plan contribution is equal to the employee’s contribution. The employer’s Employment Insurance contribution is calculated as 1.4 times the employee’s contribution. The workers’ compensation contribution is based on the Newfoundland Industry Classification for Food and Beverage Services for the appropriate year.

Many employers also question how much employees will benefit from minimum wage increases, versus a reduction in personal income tax rates for low-income earners.

Effect of Minimum Wage Increases on Employees
Minimum wage$7.50$10.00$10.50$11.00
Gross income$15,600$20,800$21,840$22,880
Federal tax deductions$742.56$1,222.52$1,183.00$1,310.14
Provincial tax deductions$772.72$904.80$902.46$1,093.56
CPP deductions$599.04$856.44$907.92$959.40
EI deductions$280.80$359.84$410.54$372.84
Total deductions$2,395.12$3,343.60$3,403.92$3,735.94
Net amount$13,204.88$17,456.40$18,436.08$19,144.06

The annual minimum wage is calculated for a 40-hour work week. The appropriate federal and provincial tax rates are applied in a given year. Canada Pension Plan contribution is 9.9 per cent of pensionable earnings, split evenly between employer and employee. The Employment Insurance contribution is determined by the appropriate rate in a given year (eg. 1.63 per cent in 2017).

Whilst proponents for a higher minimum wage argue that earning more will lead to better quality of life for employees. The evidence shows otherwise. Minimum wage earners in Newfoundland and Labrador will get an extra $700 per year from this year’s increases. Eliminating their personal income tax instead would give them an extra $1,100 per year. 

CFIB makes the following recommendations:

  • The provincial government should increase the thresholds in the Low Income Tax Reduction program and tie future annual increases to provincial inflation, rather than tying minimum wage increases to an economic indicator.
  • Establish a broad-based, well-designed training tax credit recognizing the strain on training imposed on small business.
  • If the government chooses to tie minimum wage increases to an economic indicator, the following is recommended to offset the cost to business:
    • Reduce the provincial small business corporate income tax rate to zero by 2019;
    • Ensure WorkplaceNL adopts a policy to meaningfully lower the average worker’s compensation assessment rate by the same percentage value as the economic indicator chosen;
    • Consider automatic increases for government-mandated margins equal to the percentage value of the economic indicator chosen;
    • Repeal section 30 of the Labour Standards Act and enshrine the minimum wage increase methodology in legislation t ensure predictability for business owners; and
    • Review the possibility of en enforcement mechanism that will allow minors to sell or serve alcohol, in establishments like restaurants and convenience stores.