By: Nora Duricic

While the minimum wage continues to rise across the country, small businesses are less and less able to keep up, causing the lowest rates of self-employment in a decade.

How Minimum Wage Rates Impact Small Businesses

In the last few years, Canadian, and particularly Ontarian minimum wage rates have seen a significant surge, increasing by nearly 50% from 2018 to 2022.[i] As a result, many small businesses have taken a hit, especially when the increase is compounded by the closures caused by the Covid-19 pandemic. The reality is that most small business only operate at a small gain, if any, and they simply don’t have the means to survive sudden massive changes in employee wages, particularly when they aren’t allowed to operate normally for months at a time.

What does this mean for small businesses? While its impossible to predict what will happen in a fully post-pandemic world, the current situation is dire. In fact, self-employed Canadians running small businesses are one of the only groups that have yet to recover from the devastating job losses that occurred in spring of 2020. From February of 2020 to January of 2022, the number of self-employed Canadians has dropped from 2.9 million to 2.6 million[ii], a decrease of over 10%. The only offset we’ve seen to these losses is that in some industries, such as technical services, many of the losses in self-employment resulted in more workers taking jobs as paid employees in larger corporations. However, while this means that individuals can make a living, it offers no hope for small businesses that they may recover and compete.

Financial Aid Guidelines Were Not Set Up With Small Business in Mind

Even if small businesses were given a reset button and allowed to reopen today with a fresh start, the current standards for employee compensation would make it difficult for them to survive, particularly with ongoing operational restrictions. Taking into account the massive debt most small businesses have accumulated however, shows that survival is nearly impossible. As stated by the president of the CFIB, Dan Kelly, “these are perilous times for entrepreneurs”. [iii]

Why are small businesses the only ones to be faced with irrecoverable debt? The answer lies in the lack of support they were given throughout the pandemic. Just as minimum wage rates are set as such that only large corporations can afford them, the pandemic financial assistance programs were set up so that only large companies could easily qualify. For example, interest-free loans were being given out to businesses by the Canada Emergency Business Account, but only under the condition that their annual payroll was over $50,000[iv]. The criteria necessary to receive CERB, the Canadian Emergency Response Benefit, were also at odds with small businesses. Not only was CERB only set up to replace an individual’s income, not an employer’s income to pay other employees, but CERB was only given out to those who had earned at least $5000 in 2020.[v] While most salaried workers easily meet that threshold, a small business owner having to pay its employees high rates while not being allowed to operate can hardly meet the mark. So, small businesses were left in limbo, with the financial aid for businesses being targeted at larger companies, and the financial aid for individuals being insufficient to save a business. As a result, most small business are entering 2022 with five or six figure debt, if they’re afloat at all.

The Switch to Salaried Jobs and Big Corporations

This instability has led to the inevitable; most Canadians are flocking to jobs where they can find some much-needed security. Overall, Statistics Canada tracked a 22% increase in workers in salaried jobs between the end of 2019 and 2021.[vi] Not only do salaried jobs mean that income is finally guaranteed, but these jobs are now coming with the work-from-home and hour flexibility once associated with running a small business.

What does this mean for the future of Canada’s employment landscape? Currently, small business owners are not being encouraged, as they see more and more workers leave them for the security and money of larger corporations. If smaller businesses are not encouraged, whether through financial aid, or better yet for the long term, through changes in legislation that allow them to have smaller costs in running a business, the number of entrepreneurs may dwindle even further. A small glimmer of hope lies in the results of the 2021 Canadian Self-Employment Report. Supposedly, 30% of Canadians, particularly those in creative fields, seek to transition to self-employment at some point in the next few years[vii]. This shift seems to be inspired by the fact that businesses can be run online more and more, and the overhead of starting one’s own company may be significantly lower in the very near future. Online businesses require less employees, so small businesses have to worry less about competing with the wages offered by large companies.

The rising minimum wage and the closures caused by the pandemic have crippled the hopes of small businesses. However, innovation and creativity are showing that success may once again be possible in the near future, albeit through less traditional routes.

If you are curious about your own rights to minimum wage as an employee, please feel free to visit the Employee v Contractor Tool on MyOpenCourt, Here, you can answer a few simple questions about the terms of your employment to determine what compensation you are entitled to.