You're right, I didn't see the 120 employee figure.
I'm going to work this out a little different though than you assumptions, given the types of jobs that are here, I don't think the average will jump a huge amount though.
The average for a callcenter employee in WA is around $30-35k. There are 70 employees that are going to receive an increase and I'm going to assume that they're all on $35k (even though there will probably be a proportion of those closer to $70k), even though this is overly conservative. Even minimum wage in Seattle now is about $32k/yr.
70x ($70k - $35k) is a net $2.45m increase in wages.
Payroll tax in WA is 5.5% on salary expenses above $800k/yr.
5.5% of the additional $2.45m is $135k.
The net increase in wages is therefore around $2.6m.
His salary will be brought down to $70k.
Their current net profit is $2.2m, the additional gain from his pay cut is around $900k.
Therefore this increase (even if done in year 1) will still have their net profit (assuming the $2.2m is before tax) at $500k. Sure, not as good as my original math, but still sustainable in a predictable business like this probably is at this stage.
You are assuming too many things and you HAVE to account for the fact that the minimum wage is going to be $70k, so the minimum average wage possible is $70k (i.e. everybody is making 70k). Thus, there is a net increase of at least (70k-48k)*120 = 2.6m
This assumes everybody will be brought down to $70k salary, which we know is not going to happen.
Also, 5.5% for total payroll taxes is wayyy low. Did you include FICA/medicare/SS/unemployment insurance (federal and state)?
Sorry, that payroll tax was incorrect. WA doesn't have a payroll tax. They have an unemployment tax/insurance… and is based on how many employees have become unemployed from you. It would be pretty easy to consider this to be quite low in a company that pays above-market.
The maximum is around 5.84% But seems the average is around 1% or less.
Medicare is 1.45% from employer (the additional 0.9% on amounts of $200k don't really count here).
Social Security is 6.2%
So my total tax rate was off, but it still seems to be around 8.65%. Even less if their unemployment insurance figure is lower.
By the way, there were only 70 employees that were going to get an increase in salary. Hence my estimates of people who would be under $70k at all. I took what I thought would be the lowest figure for employees in a company like this (as well as the doubling comment in the original article) and estimated the total maximum increase at $35k to $70k (even though the actual increase will be lower).
Not that our figures are really that different in that case. My $2.45m increase versus your $2.6m. Plus an extra 8.65% tax ($220k).
You also mention that this is a highly competitive market. You're right, but it's also one that scales disproportionally compared to staffing. What do you think Stripe & PayPal in San Francisco pay their staff?
I'm heavily involved in the finance sector (in AU anyway) and I can assure you that these businesses (especially in the USA) have significant margins on their average retail fees. 2.9% + 30¢ might seem like a great deal to most of everyone on here, but their top-line margins are > 30% on that, moreso for small transactions, as that 30¢ fee doesn't really exist anywhere but the gateway.
As an example (in AU), a business doing mediocre credit-card volumes of < $1m/year will be paying less than 0.4% + the Visa/Mastercard interchange fees (which is about 0.33% for the vast majority of card types… 1.023% for platinum cards).
I'm going to work this out a little different though than you assumptions, given the types of jobs that are here, I don't think the average will jump a huge amount though.
The average for a callcenter employee in WA is around $30-35k. There are 70 employees that are going to receive an increase and I'm going to assume that they're all on $35k (even though there will probably be a proportion of those closer to $70k), even though this is overly conservative. Even minimum wage in Seattle now is about $32k/yr.
70x ($70k - $35k) is a net $2.45m increase in wages.
Payroll tax in WA is 5.5% on salary expenses above $800k/yr.
5.5% of the additional $2.45m is $135k.
The net increase in wages is therefore around $2.6m.
His salary will be brought down to $70k.
Their current net profit is $2.2m, the additional gain from his pay cut is around $900k.
Therefore this increase (even if done in year 1) will still have their net profit (assuming the $2.2m is before tax) at $500k. Sure, not as good as my original math, but still sustainable in a predictable business like this probably is at this stage.