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SMALL BUSINESS

Minimum Wage Rises This Week

By BRANDI STEWART, Fortune Small Business
posted: 79 DAYS 20 HOURS AGO
comments: 1276
filed under: Small Business, Management
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(July 20) - With commodity, fuel and insurance costs hitting record highs, small-business owners are anxious about this week's federal minimum wage hike, which will require employers in 26 states and the District of Columbia to raise their base to at least $6.55.

The increase of the current $5.85/hour minimum wage is the second of three consecutive annual hikes mandated by a 2007 amendment to the Fair Labor Standards Act, known as the Fair Minimum Wage Act.
When legislators nationwide began a push two years ago for minimum-wage increases, Fortune Small Business found that many entrepreneurs considered the issue irrelevant. Amid a tight labor market, most owners were already paying higher-than-required wages to attract and retain workers, even entry-level ones.
Today's economic climate is very different. Prices for a wide range of business commodities, from gas to grain, are soaring. The Labor Department reported a net loss of 62,000 jobs in June, the sixth straight month of losses. The National Federation of Independent Business's (NFIB) latest installment of its monthly Small Business Economic Trends found that 18 percent of business owners polled cut staff in June.
As this week's wage hike approaches, small-business owners such as Joy Kealey view the mandatory increase as another frustrating pinch on profits.
Kealey owns a Boise pizza chain called Chicago Connection in Idaho, one of nine states with a minimum wage set at the federal level. Five states have no minimum wage and by default follow the federal standard, while three states have state minimum below the federal level, according to the Department of Labor. (For all but a handful of exempt positions, the federal minimum overrides the state law and becomes the de facto minimum.) The remaining 33 states have their own minimum wage rates, many higher than the new mandated minimum. In total, 26 states (plus Washington, D.C., which will raise its rate to $1 above the federal rate) will be affected by this week's change.
Of the 260 workers Kealey employs in her 11 restaurants, she estimates that 5 percent to 10 percent are paid minimum wage and will receive a raise this week. The increase may also force increases in her other staffers' salaries: Kealey is debating proportionally increasing the hourly rates of her other employees, to maintain the distinction between entry-level and higher pay grades.
Kealey's biggest concern is that the increase kicks in amid rising costs for many commodities essential to her business, especially cheese and flour. The cost of fueling and maintaining Chicago Connection's 60 delivery trucks is also soaring.
"It's very difficult to pass along price increases to consumers right now, because they're watching every penny they're spending, as well," Kealey said.
Instead, Kealey is relaying on cost-cutting strategies implemented over the last two years to help cushion the wage increase: specifically, a per-order delivery fee and increased local ingredient sourcing to diminish transport costs. She's also built a loyal customer base by sponsoring community organizations and events.
Still, she recognizes that her business, which made more than $5 million last year, may end 2008 a bit weaker.
"Business cycles exist," she said. "There are good years and not so good years."
Susan Eckerly, the NFIB's vice president for federal policy, hears Kealey's concerns echoed throughout the country.
"You can argue that around the time of the previous increase, it was hard to find a small business owner in the country who didn't pay that amount [already]," she said. "The tough part about the scheduled increase right now is the state of the economy. This is going to hit some small businesses hard, particularly those that hire seasonal summer labor."
In Texas, where the minimum wage rate will also rise to the new federal level of $6.55, James Wilhite plans to increase the hourly rates of all of his employees by 12 percent, whether or not they are paid minimum wage. Wilhite, whose landscaping business in Tyler does $2.5 million in annual sales, already finds it hard to afford fuel to power his fleet of trucks, mowers, weed eaters and leaf blowers.
"We're just simply going to have to pass the increase on to customers," Wilhite said.
Proponents of the increase say it will help strengthen the rocky economy. Jen Kern, director of the Association of Community Organizations for Reform Now's Living Wage Resource Center, believes the increase will boost sales for some businesses: "The best way to stimulate the economy is to put the money in the hands of people who will spend it in their neighborhoods, buying groceries or at the hardware store," she said.
Kern understands the frustrations of small business owners, but she is more sympathetic to low-wage earning workers who are also trying to stay afloat.
"I don't fault the anger or frustrations of a small-business employer dealing with all the rising costs," Kern said. "I just don't think the answer is keeping the minimum wage at a level that, in terms of real dollars, is below where it was 40 years ago. Yes, there are a lot of prices increasing, but these workers have to buy gas, too."
With costs rising, owners face hard choices about where to cut. At their two restaurants in Portland, Ore., Leslie Palmer and her husband Gary Kneski pay 10 of their 12 employees the minimum rate. Those staffers won't be getting a raise this week: Oregon has increased its minimum wage rate every year since 2002 and has the fourth-highest rate in the country, at $7.95 per hour.
"Because the minimum wage is so high here, I can't do things like offer health insurance to my employees," Palmer said. To help keep labor costs low, she hires only part-time employees and aggressively reduces staff during slower shifts and seasons.
The minimum wage is scheduled for its next 70-cent-lift in July 2009, when it will hit $7.25. Chicago Connection's Kealey hopes that the economy will be stronger by then.
"Hopefully, by next year, we will be able to find consumers will be more confident about their personal wealth and be more prepared to accept price increases."
2008-07-18 14:57:54
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1276 comments

Harlow295 06:26:08 AM Sep 23 2008

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hey MR got 5 dollars for a cup of coffe ,HOWS THAT SOUND!

Harlow295 06:23:03 AM Sep 23 2008

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can you afford a 10.00 dollar hambuger well get ready for it !!!!How about 4.00 for a loaf of bread, IN this economy HA good luck to all with out a job.

Webmss33 05:44:24 PM Sep 03 2008

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The wage is different in each state. Some places it's only $6.55 and others it's $7.50. They just raised the "minimum" wage through the United States to $6.55 an hour. I was making $2.10 an hour in high school when I first started working. That was over 30 years ago and it doesn't seem like we've gotten very far since the early 1970's. Maryland Secretarial Services, Inc. www.webmss.com

Jamesnyhan 07:05:09 PM Sep 01 2008

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I am all for rewarding good workers a raise. I start employees out in some positions at minimum wage and move them up on their performance. For the state of michigan has a $7.40 an hour min. wage. Most of my employees make over that now and for those that do not are either new employees or not performing. When Michigan started doing their min. wage increase I decreased hours of those who where not performing and replacing them with employees that wanted to work. I am going to make some moves this week that will shock some of my co-workers. example; minimum wage goes up by 10% I will squeeze out 5% of my staff and have the others doing more multi tasking and pass the wage increase on to them. Payroll stays close to the norm and I have workers that are performing and happy about a raise. I understand that their should be a standard starting pay (min. wage in non skilled posiotns) but I refuse to be dictated to by the state on what I should be paying a worker that is not performin

StonedPigeon 07:52:21 PM Aug 14 2008

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One day you take a bath in the sink at Burger King and the next you get a raise.

Corolla101 12:54:20 AM Aug 14 2008

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WHY DON'T WE GIVE GWB "WALLY" THE INCREASE HE DESERVES. HAVE HIM MAKE A LIVING ON THE NEW MINIMUM WAGE, AND WATCH HOW SOON HE CHANGES PARTY AFFILIATION.

LoganBidRoom 02:23:14 PM Aug 13 2008

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If one is over college age and still earning the minimum wage they should remove themselves from society's welfare line by the most expedient means avaialble.

WESXAUTO 01:04:40 PM Aug 13 2008

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as a employer this means that the workers that you can do without with fuel and freight cost out the roof will go first

TracieACNP2 12:57:44 PM Aug 13 2008

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Although I'm sure with the current economy, a minimum wage raise is needed I would like to pose a question. What the rest of us? Some do not even get yearly cost of living raises. Should the government step in then too? For those who feel that unskilled workers "deserve" more money, I say that to work in the U.S., it should be mandatory for ALL adults over the age of 18 to have as a minimum a high school diploma. There is no excuse for being uneducated. None.

Xpriori 12:48:46 PM Aug 13 2008

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It's time for a good ole' Depression to wash out all the garbage fromgovernment interference......................a barter economy works justgreat for those who produce something of value ! Minimum wage laws are a dream reserved for growing economies which theUSA is not now. The old ways work the best, that's what builtthe USA.....................and will do so again when all the 3rdparty planners are producing something of value.

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