Would a $15 Per Hour Minimum Wage Impact Your Small Business? – SBS 59

A Small Business Show Episode 59 for Wednesday, March 23, 2016 Greetings folks and welcome to to the Small Business show at businessshow Co. The show where we talk about things of interest to small business owners trying to answer questions and dissect topics and solve problems and do whatever it is we can do to make everything better. Here in Durham, New Hampshire, I'm Dave Hamilton.

And in Lafayette, California, I'm Shannon Jean. How are you, sir?

I'm doing all right. Getting over a little cold, but you know, happens.

It's going around. It's going around. Yes, we had our, we had an interview scheduled today and the same kind of thing. We had a guy lost his voice so we moved him out a few weeks. But great guy too, Brian o' Connell. And a water treatment engineer that has some fascinating stories about his business that he started, which I'm looking forward to talking to him. So he'll be on soon.

Okay, cool.

Yeah, cool. And so we've always got these other topics in our back pocket and today we're going to talk about the. I think they actually have a catchphrase for it. This movement to a $15 minimum wage that's kind of floating around or out there.

Yeah. So we're gonna, this is not a politically charged topic at all. Everybody's just gonna be really happy with whatever we say. And in fact, my guess is, I feel like when we talked about it doing this topic, I figured, all right, this is gonna be the show that generates the most comments we've ever had and I think we could stop right here and that would still be true.

Yeah, that's true. So it's good. I mean, you know, the, the thing about it is I'm, I'm very open minded and I have obviously a certain, you know, outlook on this, this topic. And if someone else would like to educate me to where I'm wrong or aspects of what I may have wrong, I would love to hear it.

Feedbackusinessshow co yeah, I, I, and I, I, I am, I am eager to be re educated on this.

Sure, sure.

But let's have the conversation first so people know how to re educate us.

Yeah, yeah.

My we, you and I have not really talked about this and we've talked about things like this and my guess is we have similar mindsets. Although we might not be in lockstep. But you want to start.

Sure. So, you know, it seems like, you know, there's a number of politicians and some unions maybe, I don't know if it's all unions. But that are, have got this national movement here to raise the minimum wage to $15 an hour. That seem about right.

Yeah, yeah, yeah, yeah, yeah. Yes.

You know, and from a small business perspective, I'd like to talk today, you know, about why I think that is not a good idea for employees and employers. And, and I think that coming from a small business perspective, especially, you know, my businesses, we've always paid more than the current minimum wage. I mean, it really has never been a starting point for us to say, oh gee, what's the lowest we could pay? But we certainly have entry level positions that pay less than 15 bucks an hour with the goal that you would not stay in that position very long, that you would get your foot in the door, show us what you could do, and you know, with plenty of opportunities, you would move up into other, you know, positions and that pay more. And I, I. But one of the things that I always tried to do is we always would like to pay people that work for us as much as we possibly can. And when I have a conversation with people about this topic, often, you know, they come at it from the other aspect like, well, you just want to pay people as low as you can. Well, that's absolutely not true because, you know, as you develop your company and your business, you know, you want those people to really have people work for you to have buy in and maybe a piece of the action, if you will them, something to where they're just as motivated to make the business grow and create a great environment and treat customers well as, as you are. Otherwise it'll never work. It does not work to try to pay people as low as you possibly can, in my experience.

Well, not for your business.

Not for my business.

Yeah, I have, well, I have some thoughts about this. We're not completely out of sync, but I have some color to add. But go ahead, finish.

Yeah, yeah.

Okay. So one of the ways I always say, Zach, look, we would love to people more, but let me talk about where some of the money goes that we earn. You know, here in California, we, you know, we businesses pay basically 7 to 13%. If you're an LLC or an S corp, you're bringing it to your own personal bottom line. So you're paying between 7 and 13% in taxes there in that income that you generate, which I get, no problem. Then they start to add things on. We have local business taxes, which adds about another 1% off of your net. In several of my companies, we have what I think are egregious local business license Fees that are typically about 1.25% of your gross revenue.

Okay.

Which is ridiculous. And we also pay annual taxes on equipment that we've already purchased, state and local.

Sure, yeah. Property taxes.

Yeah, yeah, yeah. That's about another 1%. And on top of that, we pay unemployment insurance. That's also another tax. And it's so complicated to figure out here, at least in California, that I can. I can only tell you it's about 3 to 5% of the first 7 to $10,000 of each employee's pay.

That right.

That you put in. And it changes every year because your company is rated by how many people claim.

File against you.

Yeah.

File against you.

Even if. And one of the things I love as a tangent about unemployment is I. And I'm sure you do this too, I have to pay unemployment on myself, even though I cannot collect against it.

Correct.

I can't fire myself and collect unemployment, but I have to pay, you know, that X percent of the first. Whatever, 7 to 10,000.

Yep. Yeah.

It's a brilliant system. Yeah, it's great.

Good work if you can get it.

Yeah, yeah. And not, you know, you want to be Machiavellian about it. You want people to have a cushion. Of course. I have no problem with it at all.

Totally.

All these things add up. And then in addition to, you know, you've got other low. Local permits and fees, state permits and fees, we pay all kinds of agencies that require a payment for us to operate, you know, for our electronics business, Bureau of Electronic Repair requires to have a license, of course. And I mean, I could give you a laundry list of fees and permits that we pay to do for the privilege of doing business here. And again, not to complain about that, because those are just, that's just. Everybody's on the same boat. We're all paints how it works. But if, if politicians would like us to pay more, maybe we should get a little bit of that money back or a little bit of consideration when you're like, well, hey, you know, how do we help these guys out? Let's. Let's adjust some of these fees. And if, if the employer gave it back to the employee, which I would love to do. Sure, it seems great. And so my, my take on it in, you know, in addition to these other fees, we pay health care for all of our employees. And, you know, all those things add up.

Right.

As a small business, you don't have the representation in political clout that larger companies do, so you don't get to lobby. And one of the Biggest ways that a lot of companies get around these things and then where they maybe don't complain about them as much because they know they're going to get an exemption.

Right.

And exemptions are kind of this insidious back room. You know, talk about a good old boys club or whatever you want to call it. The same thing happens with the healthcare, with, oh, totally, you know, it's okay, yeah, no problem. But we're going to give this guy a deal and those kind of deals are not transparent and they don't serve any of us well. And I, and I think the same thing will happen with this, you know, this kind of, this issue.

Well, ok.

It's frustrating.

So I think the point that you're making is in order for anyone to earn money at your company, the, there's all these fees that have to be paid, taxes, insurance, licenses, whatever you want to call them, I'll just lump them together as fees. And that money has to come from somewhere. And in fact it comes from somewhere very specific. It comes from the first dollar that comes in the door.

That's right. Because there's no option, there's no option to pay it.

Right.

So dollar number one goes out the door immediately.

Right.

You know, and these, a lot of these, some of them, like you said, are percentages based on, you know, either what you're taking in or what you're paying out. And some are fixed costs. You know, you could sell nothing and you still need to pay that fee.

Yeah, that's right.

But, and I, and I feel you, however, you're not, we're not really talking about minimum wage yet.

Right.

I mean, because just to be fair, you pointed out that you don't, you don't, minimum wage doesn't, is not a wage that you pay. You always pay people more. I don't want to say it doesn't factor in because it could be argued that it factors into everything. And that's kind of where I think we need to go with this. But you're not using minimum wage to say, all right, well this is what the state says I have to pay you. So here it is, you know.

Correct.

You're not going to get any more than that.

Right.

You're not doing that.

Right.

I don't do that here either. However, you brought up something interesting. You said that you have entry level positions.

That's right.

And yet those positions aren't being paid minimum wage. They're being paid more than minimum wage. And I think where the discussion, where I see the discussion and I Understand where the nobility in this discussion is, right? Where people want to move the minimum wage up. And I'll mention this, but I want to address it in more detail kind of in the second half of this. People want more people to be earning above the poverty level.

Right.

I mean, I get it. I want it too.

Right? Yep.

Everybody wants a better life and I.

Want everyone to have a better life. It's not, you know, I'm not saying just for me, you know, not you.

Yeah, right.

But I think it's important to note the distinction between entry level and minimum wage, because here's the thing. You know, my daughter at 14 was, had a job at Dunkin Donuts earning minimum wage. Actually, she was earning just a little bit higher than that. We have no minimum wage here in New Hampshire, which is a whole other conversation that people get up in arms about. And I understand why. So we adopt the national, the federal minimum wage, which is seven and a quarter an hour. I think, I think, you know, walking in the door at Dunkin Donuts, she was making 750, but, you know, effectively minimum wage. But there's a difference between entry level and high school job.

Right.

And we need to be careful in this conversation. I'm okay. And I think a lot of people confuse the two.

Right.

And so there's this discussion of, well, if somebody's going to be working 40 hours a week and you know, for a company like you have Shannon, and yeah, they're doing an entry level thing, but they can't be making, you know, $14,000 a year. That they can't survive on that. Well, you don't pay them that, right?

That's correct.

Yeah, but that's the thing. And for those of you that haven't done the math, it's really, really easy to take an hourly wage and turn it into an annual salary at 40 hours a week. You just double the hourly wage and add a thousand and then that pretty much gets you there.

Right.

So, you know, at $7.25 an hour, you're looking at, you know, $14,500 a year. This isn't, you know, that's not enough money. Now it is above the poverty level for one person in a single person household. We can argue the poverty level too. But you know, that, that just to use the definitions, that's where that comes from. The, the issue. I, I really feel like if we're going to have this conversation about minimum wage and, and at $15 an hour, and I think it's 10 for you in California, right. At the moment, just a 10. Four.

I think. So, yeah, it's moving to that. The higher number.

But it's.

Yeah, yeah.

If we're going to have this conversation, I almost feel like we need to have two minimum wages.

Right.

But yeah, part of it is also what the market will bear.

Well, that's not, see that, that's the thing. It's, you know, we pay a higher wage. Well, two things. One thing, you know, we were talking earlier about, you know, you want everybody to do better. And I think there's a perception that, you know, with a number of folks that have this, when you have this conversation is that, well, in order for me to do better, you have to do worse.

Right.

And that's just not the case. You know, it doesn't play out that way. You know, if you're an employer like that, you will just burn through your staff and you will never create, you know, you never bring those people up that can eventually help you grow your business. It doesn't happen. But the, the other thing is, you know, this, this entry level concept, these positions were never meant to be careers in and of themselves.

Yeah. And I think we have, we definitely have some business owners to blame for, for taking advantage of that, but we also sort of have the populace to blame for allowing that to happen. I mean, it, there needs to be a difference between what it pays to work at, you know, for a kid at Dunkin Donuts versus right. You know, somebody who wants a 40 hour a week job and needs to support themselves or a family or anything like that. And I think they're, and maybe it's just me being naive and this is where I really want to hear from folks, but I feel like if we, if we go and say, okay, that kid that works at Dunkin Donuts, that person needs to make $15 an hour. Okay, now we have a math problem. Okay. Because the goal is to get less of the population or take the, take a good percentage of the population that's earning below the federal poverty level and get them above it. I'm totally, I understand.

Right.

I'm into it.

Yeah.

But at 15, they won't be able to afford a donut.

Well, but that's the thing, right? If you've got, let's say, and I'm just going to throw numbers out here, let's say, you know, you've got $14,000 a year for somebody earning minimum wage if they're, if they're working 40 hours a week. And then, and I'm just going to pull a Number out, it doesn't matter what number I pull. But let's say $130,000 a year is what the district manager at Dunkin Donuts makes. I have no idea.

Right.

But you know, I'm just going to throw that number. It's probably not too far off. Maybe. I don't know, maybe it's 90, maybe it's 150. It's probably not anywhere, you know, it's not outside those bounds. So let's call it 130. So you have 14,001 30. If you take 14,000 and turn it into 30 by raising the minimum wage to $15 an hour, which is what happens. So now this person or this group of people that earns, that works 40 hours a week, it doesn't matter, you know, now that that is being paid at $30,000 a year, the price of a cup of coffee goes from being whatever, two and change to probably five bucks, you know, at Dunkin. And you're probably paying more than that at Starbucks and everywhere else, right? What now happens? Dunkin Donuts needs to. Dunkin Donuts has a profit margin. Their profit margin is not going to change, okay? It is a percentage of their gross revenue. So if you're telling them they have to pay more money out, well, now they have to bring more money in. So they're going to raise the price of coffee, which now this person that used to earn 7, 25 an hour, that earns 15 an hour, can afford, and they bring more money in, their profit margin stays the same, but it's the same slice of a larger pie. And now the person that was earning 130,000 is gonna be earning, you know, 210,000 a year. And guess what? We just defined inflation.

Yeah, Everybody just moves up. But it's all relative, right?

It's all relative. So we've temporarily, and I get it right? You know, even for a family of four, the national poverty level is 24,000. It seems ridiculously low to me. I don't know where you could do that. But so here, here's.

Let me interject this.

Yeah, I think the poverty level's gonna go up is what I'm. What I'm saying. We gotta be careful how we solve this problem. Yeah, I agree.

And I think also the scenario that is very likely is because, you know, we talk Dunkin Donuts and fast food, McDonald's, these huge companies, Starbucks. But let's take like Bob's Donuts, okay? And Bob hires high school kids and this kind of thing, and this happens And Bob says, wow, I gotta Pay these guys 15. Well, Bob is trying to adjust his reality and raise his prices. And the local folks that support Bob's instead of going to the corporate thing, says, oh, I gotta come help this guy out. In the meantime, Dunkin Donuts, which is a multinational, multi, I would imagine, billion dollar entity, just like maybe a Starbucks. Sure. Well, they make a few phone calls to their friends and their people that they donate to and their politicians and say, hey, look, we're doing entry level jobs here. We, we need an exemption. And the politicians, boy, you're right, you're trying to help out. Okay, great, we're going to file this thing and. But of course, you know, any time. And this is my cynic here, of course, talking for a minute. So. But you know, of course we're going to file some government paperwork. So, you know, there's going to be some forms, you know, that are probably going to be required in triplicate many times over. And you got to file this and do this and there's going to be some perm and this and that. So it becomes a very, it could become a very convoluted thing. But the exemptions come down. Okay, Dunkin Donuts, you've got an exemption. You've got this. We pass this bill and Bob is sitting here on that sideline, you know, this guy's, you know, local business and maybe he has, he doesn't even know about this. Or he says, man, I don't even know how to file this paperwork. I gotta get some help in this permit. And it's $500 and this kind of thing. What happens is you've taken a, maybe not a level playing field, but certainly more in tune with market realities and you've taken it to the back room where deals are cut to help out certain people.

Yeah, okay, but here's the thing though. I'm with you on your cynicism. Yes, but you just painted an unrealistic scenario and here's why.

I think so.

Yeah. Because Dunkin Donuts and Bob's are in the same town.

Right.

And let's say they're across the street from each other or whatever. They're down the block from each other, but they're drawing from the same labor pool. Well, if Dunkin Donuts gets an exemption, that lets pay $10 an hour, but Bob's has to pay 15. Guess who's not gonna have any employees?

Duncan.

Right.

Yeah, yeah, they'll go to the higher dollar. I guess that. Yeah.

You know, but I mean, I Get it that there's all these exemptions. But I don't think an exemption on minimum wage flies just because you've got this great equalizer of the, you know, the local talent pool.

So, yeah, I, and I, and I get. And I do. I see your point there and I think you're right. And so you know that I've just seen it so many times where things happen a certain way and you're like, wait, I didn't even know about that. So I'm sure there's a, maybe there's.

A break on payroll taxes. I mean, ye.

They do something. Yes. You know, the very smart corporate attorneys that are, you know, connected and they're former politicians or whatever, they always seem to finagle something that is, you know, works on this grand scale. It happens. But the little guy, you know, can't do it. Left out in the cold because he doesn't qualify or he doesn't do this or he doesn't do that. And that's my fear, you know, on a worst case thing. And I understand the flip side, hey, you know, we got to lift these people up and I want to do it. I'm all about lifting all the boats.

Well, the question if we're going to do it, and I think this has to be, I mean, this is one of those things where you can't just move one of the dials, right. Because other dials move at the same time. What really I believe people are asking for is to narrow the delta between, to put it simply, and as I just said, this is not a simple thing to talk about, but to narrow the delta between the lowest paid employee and the highest paid employee.

Right.

I mean, that's what, sure. That's what's going on here is because if you don't do that, then all you're doing is inflation.

Right.

I mean, by classic definition, you're just raising everything. Okay, great, you're now you're making 15, that guy's making 300. What's the difference? There's no difference. You know, short term, little benefit maybe as it sort of shakes out and then it's over. So. And then the poverty level goes up, you know, and now where are we? So it's a really hard thing.

It is, it is a hard thing. And I think that the other thing that is, is not taken into consideration. We should talk about is, are, is this a reaction of some of these or many of these or you know, maybe even all of them of these positions going away? Is this the, you know, horse And Buggy Whip, you know, manufacturer, you know, are trying to save these positions or not the manufacturer, but the union or some kind of thing. You know, are you going to walk into Dunkin Donuts and why couldn't you just walk in and put your credit card or your phone or whatever, you use your Apple Pay or Android Pay and whatever it is and get your donut with there without talking to anybody?

You know, I just saw that there's a local, not a, not a chain or anything, but. And I think this is in Sweden, I think it was from one of my friends in, in Sweden or Norway or something that has a convenience store and they have an app and it is not manned by anyone. It is, the honor system is what runs the store. You, you create an account, a customer account. You go in, you do your, you, you get your stuff, you scan your stuff and you walk out.

Yep.

And, and I mean maybe that's unrealistic for a large scale. I mean it's really working. But only in one place, you know, and everybody knows the owner and nobody wants to screw him. And you know, I mean there's, yeah, there's some goodwill here that's, that's not necessarily replicable, but you know, it's happening. So. Yeah. Why couldn't you, why couldn't you do this at Duncan and you could.

Yeah.

So maybe, maybe, maybe the tinfoil hat is not on this one is not undeserved.

Yeah. And I think that like I happen to know some people that own fast food places and I can tell you there's also a confusion and I will focus just on fast food because I think it impacts smaller. Well, I guess let me play this out and we'll see. A typical fast food owner is a small business.

Right.

They're franchising from a large corporate entity, you know, a Wendy's, McDonald's, a Dunkin Donuts or whoever. And those folks that own those business are small business owners. And these guys and ladies, you know, they work very hard and nobody is driving, you know, a Mercedes by owning one fast food restaurant.

Oh yeah, they're making a living. Yeah. But they're probably working like 60 hours a week to do.

Absolutely, absolutely. So I think there's also a confusion in the, in this, in the media when they portray these things where they hold up this, you know, multi billion dollar corporation that is essentially in the real estate business.

Right?

Yeah, they own all this real estate.

Right.

But the target is the small business owner in your town that owns the fast food place, the Dairy Queen. The whatever that you go through. And they I think are the ones that, you know, this is going to be hoisted upon them. I would love to hear back from, you know, some folks that are in that position and talk about, you know, are you ordering kiosks today? Are you, you know, is this part of this long term plan where, you know, you lose that, that cashier? You know, it'd be interesting.

Well, you know, I mean, and that's part of a bigger conversation that we've. I want to say that the social value or the perceived value, because it's not the actual value, in fact it's just the opposite, but the perceived value of becoming a plumber, let's say, versus a computer programmer. The computer programmer is seen as a far more glamorous and a far more. We as certainly Americans are far more deserving of being a programmer instead of a plumber. Now what's happening, however. Yeah, right. The, the average rate for a programmer is plummeting while the average rate for a plumber, especially the, you know, in, in the right area is skyrocketing if you can even get one because there's less and less of them in the field.

So it is a good, very interesting concept that we could talk, we should do a whole show about that.

Yeah.

Perceived value of your services and, or your product because it is dramatically. Well, it's fascinating.

It's just fascinating.

Yeah, yeah, yeah, it is, it is.

Yeah. So I, I mean I, I don't, I don't know the answer here, but I haven't.

It.

I am against every plan for a minimum wage at 15 that I have seen. I am not necessarily against the concept, but I haven't seen a plan that, that just makes sense.

Right.

I don't know, maybe I'm missing the point.

Maybe. And you know, certainly love to have some folks reach out to us, you know. Feedbackusinessshow.co. let us know, you know, what your experiences with it. I know there's some cities I believe that are already there. I'm actually gonna be up in Seattle next week and I think Seattle might be one of the cities that have already implemented this. And I would like to, you know, because a lot of the things, I admit our anecdotal evidence.

Right.

Of how things are going to be, what's going to happen and you know, and, but I'd like to think that, you know, we're trying to look at both sides here, not just as business owners thinking, oh, that's going to just take more money out of my pocket. That's really not where we're coming from. So take the time to educate us and tell us how we're wrong. And, you know, if you're involved in this movement, you know, let us know and maybe we can have you come on the show and, you know, share your point of view with our listeners as well.

Yeah, yeah. It's crazy. It's crazy. Okay. But I want to pull this one thing in because I'm looking.

Yes, sir. I'm sorry, Seattle.

No, no, no. You mentioned Seattle. So this is interesting. Seattle's minimum wage started rising in April. So this is this past April. This is an article from January as part of a new city ordinance. And 2016 brought another increase in the new year companies. And here's where it gets really interesting. Companies with 500 or more employees must pay a minimum wage of $13. An smaller companies without benefits are up to $12 an hour.

Without benefits.

Yeah.

Oh, maybe they give you some exemption for. Or some, you know, consideration for, you know, offering health benefits.

Yeah, yeah, yeah.

Which seems, you know, I mean, I don't like government in my business, if you haven't gotten the sense of that over the last year and a half. But, you know, if I do understand trying to. To take care of folks, we. We do need to do that. And there's a whole, I guess, for lack of a better word, unskilled labor force that we have to find something. They're not, you know, it's not our obligation to find something for them to do, but the repercussions are very bad for all of us.

Yes.

If they do not have something to do. So, you know.

Right. Yeah.

It's going to be paid for one way or another.

Exactly.

Yeah.

Exactly.

Yeah. So. So better to. To find a way to make everyone as, you know, or as much people, as many people as possible, productive for society. But.

Yep.

I don't. I don't know the answer.

Yeah. Yeah.

I'm still trying to wrap my head around this Seattle thing. How do you. I mean, what happens to the small guy that says, okay, well, I can charge 12 bucks an hour, but that one across the street has to pay or not charge, pay 12 bucks an hour, but that guy has to pay 13.

Yeah, that's what I mean. You run into all the stuff. A quick example, you know, years ago, we hired some folks that were working for another company and it was a competitor of ours, and it was not far from our location in our state, and, you know, we got along fine. And I could. I was always beating my head against the wall. Like, how can these guys afford to do things at their, at these price points? How can they make any money? And, you know, I try not to really focus on the competition too much. I really try to focus on our services and, you know, that kind of stuff because it pays off better in the long run. But you do have to know what's going on. So we hired a few folks over time from this other company that. And they left and, you know, they just came in, in the employment pool, if you will. You know, we post ads and then I'd find, oh, you used to work for so and so. And it came out not long after we hired one person that these folks never hired anyone. This other company never hired anyone as an employee, even though they required them to show up every day at a certain time.

Yeah, all those define you as an.

Employee to find you an employee. No benefits, didn't pay Social Security taxes on that person, didn't provide any unemployment insurance, didn't. I mean, all these things that legitimate businesses have required to do, and we're happy to do it, they didn't pay. And this was their marketing difference.

Right.

Because their cost to offer, you know, a 200 service was much less.

Yep.

And really got to me, you know, I was like, how could that be? You know, why would they. Number one, I felt like it was just sleazy to try to do this. And it was taking advantage of these, you know, these were entry level employees. And it really was, you know, so that's one of the big concerns I have. Just like this thing in Seattle. How do you know where everybody's, you know, are they really on the same, you know, wage structure? I don't, I don't think it works that way. And some people are going to figure out angles and some folks aren't, and that's who succeeds. But, you know, who figures out the angle, which is, you know, it's how it always is. It is kind of how it always is, I guess. And so, you know, I want to, I always try to stay very positive about these conversations. And it's like, hey, if this is the way things are going, okay, let's just figure out. And if we're all going to be on the same level, same playing. If the playing field is level, I can compete with anybody.

Sure.

But my fear is that it won't be level. But you won't know that. You won't know it because there's this, you know, lack of transparency in how things come down in government. I think we would all be appalled at many of the things that go on every day that benefit some people at the expense of others.

Yeah.

No, you're right. I know. Yeah. I'm just. Man, I don't know the magic answer.

Yeah. We'll come back to it. Hopefully we hear from some folks with some experience.

Yeah, I'd love to hear from people. Yeah. Feedbackusinessshow CO that's all I got.

Me too. Thanks for hanging out today, folks.

We'll see you. We will see you next week, and we'll take it from there.

Yep. Take care, everybody.