Getting Ready for Ontario’s October 2025 Minimum Wage Increase: A Small Business Guide
Ontario's minimum wage is rising on October 1st. Here’s what small business owners need to know to prepare for changes to staffing costs, pricing, and payroll.
The Upcoming Change and Why It Matters
For small business owners in Ontario, managing costs while attracting and retaining talent is a constant balancing act. This fall, another factor enters the equation: the scheduled increase in Ontario's minimum wage, effective October 1, 2025.
While higher wages put more money in employees' pockets, this change directly impacts your bottom line. It requires proactive planning around staffing costs, pricing decisions, and overall payroll management. Ignoring it isn't an option, but with foresight, you can navigate the transition smoothly and even find opportunities for improvement.
This guide will break down what exactly is changing, who is affected, and provide actionable strategies to help your business adapt and thrive.
What’s Changing on October 1, 2025?
The New Rate:
As of October 1, 2025, Ontario's general minimum wage will increase from its current rate of, $17.20 per hour to $17.60 per hour. This represents an increase of $0.40 per hour, or approximately 2.4%.
How Increases are Determined:
This adjustment isn't arbitrary. Ontario's minimum wage increases are typically tied to the provincial Consumer Price Index (CPI) through legislation like the Working for Workers Act. This mechanism aims to ensure that wages keep pace with inflation, providing predictability for both employers and employees. The government usually confirms the exact rate in the spring to give businesses several months to prepare.
Who is Affected?
It's crucial to understand that different categories of workers have different minimum wage rates. The October 1st increase generally affects most categories, though the specific amounts will vary:
General Minimum Wage: Applies to most employees.
Student Minimum Wage: Applies to students under 18 working 28 hours a week or less when school is in session, or during school holidays. This rate will increase from $16.20 to $16.60
Homeworkers Minimum Wage: This rate applies to employees who do paid work out of their own homes for an employer. This rate will increase from $18.90 to $19.35.
*Always verify the specific rates applicable to your employees on the official Government of Ontario website.*
Who’s Affected—And Who Isn’t?
The impact of a minimum wage increase extends beyond just the employees earning the absolute minimum.
Direct Impact: Any employee currently earning less than the new minimum wage must receive a pay increase to meet the new legal requirement. This includes part-time staff, seasonal workers, and new hires.
Indirect Impact (Pay Compression): Consider employees who currently earn slightly above the new minimum wage (e.g., $18.00 per hour). When the base pay rises to $17.60, the pay gap between new hires and experienced staff shrinks. This "wage compression" can lead to decreased morale and retention issues among senior staff who may feel their experience is no longer valued appropriately. You may need to plan for small adjustments for these employees to maintain internal pay equity.
Exemptions and Nuances: Remember that certain individuals are exempt from minimum wage provisions under Ontario's Employment Standards Act. These typically include independent contractors, secondary school students in co-op programs, and individuals performing work under specific government-funded training programs. Ensure your worker classifications are accurate to avoid compliance issues.
Calculating the Cost Impact on Your Payroll
The direct cost increase is more than just the hourly rate change. Here’s how to model the financial impact:
Scenario 1: Part-Time Worker (15 hours/week)
Hourly increase: $.40
Weekly cost increase per employee: 15 hours * $.40] = $6.00
Annual cost increase per employee: $6 * 52 weeks = $312
Scenario 2: Full-Time Worker (40 hours/week)
Hourly increase: $.40
Weekly cost increase per employee: 40 hours * $.40 = $16
Annual cost increase per employee: $16 * 52 weeks = $832
In order to help you to determine the upcoming base payroll increase, we built you a spreadsheet. The examples are there to guide you, and you can add in each employee with their current rate, anticipated new rate (considering the minimum wage increase and avoidance of pay compression) and their weekly hours. You can find that here. A bonus benefit of using this spreadsheet is easy communication with your payroll provider (even if that is also you). Just complete a line for each employee and send the spreadsheet to them with the date for implementation made very clear.
Beyond Wages: The Hidden Cost Multipliers
Your total payroll expense increase will be higher than just the base wage adjustment due to mandatory employer contributions:
Increased Payroll Premiums: Employer contributions to CPP (Canada Pension Plan) and EI (Employment Insurance) are calculated as a percentage of gross wages. Higher wages mean higher premium payments.
Vacation Pay and Public Holiday Pay: Vacation pay (typically 4-6% of gross wages) and public holiday pay are calculated based on the employee's rate of pay. As the base rate increases, so does the cost of paid time off.
Overtime Pay: Overtime pay (1.5 times the regular rate) will become more expensive. If scheduling inefficiencies often lead to overtime, the cost penalty will grow.
Strategies to Prepare and Adapt
Proactive adjustments can help mitigate cost pressures and improve overall business health.
1. Review Your Staffing Model and Scheduling
Optimize Shifts: Analyze peak and slow periods. Can you adjust shift lengths or scheduling to minimize downtime without affecting customer service?
Cross-Training: Invest in cross-training employees to handle multiple roles. This increases flexibility, allowing you to cover shifts more efficiently with fewer staff on hand during quiet times.
Evaluate Roles: Are there tasks currently performed manually that could be streamlined through technology or automation? This could range from new scheduling software to customer self-service options.
2. Re-evaluate Your Pricing Strategy
Cost Analysis: Calculate exactly how much the wage increase adds to the cost of delivering your product or service.
Incremental Price Adjustments: Determine if a small price increase is necessary to maintain profit margins. Customers are generally more understanding of price adjustments when they are linked to widely publicized cost increases like minimum wage hikes. Communicate value clearly.
Efficiency Gains: Before raising prices, look for internal savings. Can you reduce waste, renegotiate supplier contracts, or optimize inventory to absorb some of the cost?
3. Invest in Productivity and Retention
Training and Tools: Higher wages should ideally correspond with higher productivity. Invest in training that helps employees work more efficiently or improve upselling techniques. Provide them with better tools to do their job effectively.
Reduce Turnover Costs: Higher wages can improve employee retention. Calculate the cost of hiring and training a new employee (advertising, management time, initial productivity dip). If the wage increase prevents even one employee from leaving, you may save money in the long run.
4. Communicate Proactively
Internal Communication: Don't let your team hear about pay changes through rumours. Communicate clearly how wages will be adjusted, including for those already earning above the new minimum. Reinforce your value proposition as an employer beyond just the hourly rate (e.g., positive work environment, flexible scheduling, training opportunities).
External Communication (if raising prices): If necessary, frame price adjustments confidently, linking them to ensuring high-quality service and fair compensation for your team.
Looking Ahead: What to Watch For
The business landscape is always evolving. Keep these factors on your radar:
Future Increases: Minimum wage adjustments tied to inflation are likely to continue annually. Factor small, regular increases into your long-term financial planning rather than treating each one as a surprise event.
Regulatory Changes: Stay informed about other potential changes to employment standards, such as paid sick leave expansions or new scheduling regulations, which can also impact costs.
Economic Conditions: Monitor inflation, labour availability in your sector, and wage trends among your competitors. In a tight labour market, the legal minimum wage may become irrelevant if market rates for good employees are significantly higher.
Plan Now to Thrive Later
The October 1st minimum wage increase is a predictable change that successful business owners will manage through planning, not panic. By taking a proactive approach, you can adjust your operations, maintain profitability, and continue to be a competitive employer.
Your Action Plan:
Run the Numbers: Use your payroll system to create "what-if" scenarios based on the new wage rates. Understand your precise cost increase, including payroll taxes and vacation pay.
Talk to Your Team: Discuss scheduling needs and potential efficiencies with your employees. They often have great ideas for improving workflow.
Review Finances: Revisit your financial forecasts for the fourth quarter and 2026. Determine if pricing or operational adjustments are needed to accommodate the increased staffing costs while maintaining your trajectory toward your other goals.