Inflation Rates, Labour Rates, Insurance Rates Oh My!

There are a lot of “rates” that change and fluctuate impacting our businesses in many ways.

The news is constantly talking about them in one way or another. Let’s break them down so you can understand them and feel confident when you see them in the headlines.

Inflation Rates 

We all hear about the “inflation rate” so what the heck does it mean?  Inflation rate describes the rise of price – how much things costs in the past versus how much they cost today.  If you think back to when you were a kid, how much did a slurpee cost at the corner store, compare it to what it costs now and that’s the effect of inflation.

So why is this important to your business?

Canada’s inflation rate jumped to a new 18 year high of 4.7% in October.
When entrepreneurs are planning their budget and pricing strategies for the next year, they are making assumptions about how much it’s going to cost to produce and sell their product or service.  When inflation is on the rise, the cost to purchase goods and keep the doors open and the lights on, are going up. Purchasing power, the ability to buy things with the money we have, weakens.  If entrepreneurs aren’t increasing the selling price to their customers their bottom line, what they take home, is also reduced.

What can entrepreneurs do?

Review your costs.  Look at your profit and loss (income statement) for the last year, compare it to the year before – are your expenses increasing faster than your income?  Is it time for a price adjustment?  Do you need to increase your selling price?

Supply Chain and Shipping Rates

From natural disasters shutting down highways in BC, ships getting stuck in the Suez Canal, congestion at ports to the impact of Covid19 shutting down manufacturing plants, all of these unpredictable variables impact supply chain and shipping rates.

So why is this important to your business?

Air freights have doubled in recent months while container shipping has more than quadrupled in the last year. Experts are warning business owners to prepare for rates to increase 6-12% above current levels for 2022 as a result.

With experts noting it could take two plus years to normalize shipping rates, entrepreneurs need to monitor the cost of getting goods into Canada and out to consumers.

What can entrepreneurs do?

Look at your freight costs regularly to ensure your pricing strategy, the cost you sell your product for, reflects any increases in your shipping rates.

Work with a logistics provider to ensure you are getting the best possible rates for your company.

Labor Costs

According to some experts – Wages are set to rise 2.7% in 2022

In addition CPP and EI rates are on the rise:

Canada Pension Plan (CPP)

  • Premiums for the Canada Pension Plan will increase January 1st from 5.45% of your employee’s earnings to 5.7%
    • The maximum pensionable earnings is set at $64,900, up from last year’s limit of $61,600
    • What does that mean: Employees who earn more than $64,900 in 2022 are not required or permitted to make additional contributions to the CPP
  • Employer and employee contributions will be maxed at $3,499.80, up from the $3,166.45 from last year

What does this mean for:

  • your business: your potential increase in payroll contributions (cash outflow) will increase by a maximum of $333.35 annually per employee
  • your employees: your employee’s payroll deductions will potentially increase by a maximum of $333.35 annually (reduced take home pay)
  • Self-employed contributions: will be maxed at $6,999.60 up from $6,332.90
    • What does this mean: your potential increase in cash outflow, if you are self-employed, will increase by a maximum of $666.70 annually

Employment Insurance (EI)

  • Premiums for Employment Insurance remains unchanged for 2022 at 1.58%
    • The maximum pensionable earnings is set at $60,300, up from last year’s limit of $56,300
    • What does that mean: Employees who earn more than $60,300 in 2022 are not required or permitted to make additional contributions to EI
  • Employee contributions will be maxed at $952.74, up from the $889.54 from last year
    • What does this mean: your employee’s payroll deductions will potentially increase by a maximum of $63.20 annually (reduced take home pay)
  • Employer contributions will be maxed at $1,333.84, up from the $1,245.36 from last year
    • What does this mean: your potential increase in payroll contributions (cash outflow) will increase by a maximum of $88.48 annually per employee

So why is this important to your business?

Understanding how much it costs to run their business is key for any business owner.  The ability to summarize the total expenses you are responsible for on a monthly basis, gives you the knowledge you need to determine pricing and selling strategies.

What can entrepreneurs do?

Plan for the future – prepare a budget with projected expenses (known costs).  This will tell you how much revenue you need (cash in your pocket) in order to keep the doors open and lights on

Insurance Rates

Insurance is becoming a major cost constraint for small businesses

About seven in 10 businesses in Canada have seen their insurance premiums rise since January, 2021, according to a Canadian Federation of Independent Business (CFIB) survey released in August. The extra costs come as many businesses are struggling amid the economic uncertainty caused by the pandemic.

So why is this important to your business?

Understanding your business expenses is vital for every entrepreneur.  Knowing your costs gives you the tools you need to make informed business decisions on pricing, buying, hiring and expanding.

What can entrepreneurs do?

Review your insurance policy, are rates based on historical revenue dollars?  Talk to your insurance agent.

The Founders

Educating and elevating women entrepreneurs through our cornerstone Financial Literacy Program, our conversations, and our community.

We are changing the narrative around money and equipping women entrepreneurs to feel capable, confident, and connected.

Shannon Pestun & Shauna Frederick

Created by women entrepreneurs for women entrepreneurs.

Feel capable, confident, and connected! Just $379 (limited offer, payment plan available)

Post by Stephanie

Comments are closed.