When should businesses increase prices to keep up with rising payroll costs?

On the "raise again mid-year?" question: one way to decide is to tie it to the cost that moved, not the calendar.

• If payroll went up in January and your 4% covered it, a mid-year rise needs a new reason (a wage change, fuel, insurance renewal). Customers accept "costs went up again" when it's true, and they notice when it isn't.
• If the January rise was deliberately modest and you're still under target margin, a second step is fine. Say so in the January letter next time ("we're phasing this in over the year"), so the second one isn't a surprise.
• Keep new-customer pricing separate. You already raised first-time services by 5%, which is the cheapest place to recover margin because there's no existing expectation.

Whatever you pick, put the next review date in the calendar now and give the same written notice each time: new price, start date, how to cancel. Losing 2 of 400 suggests your clients trust you. Keeping the process predictable is what protects that.

I only now beginning to look at hiring, and have been assuming I'd give CoL raises at min each year, and pass that along as a price increase, where merit based raises will come out of revenue as it will be planned for up front.  I also have no idea what I'm talking about!  

Great question and it is super important to run a healthy business.  We do a price increase every quarter.  We just monitor the customers that needs to be raised.  This way we don't necessairly lose too many customers at once.  For me the price increase was always about an 80%/20% rule.  This way it is more close to 95%/5% meaning that we only maybe lose about 5%.  And I know this sounds scary but in reality the customers you were able to raise for, you already make up the lost money and effort.