New wage changes hamper small biz survival

Pre-pandemic, the fiscal realities of owning and operating a small business were hardly top of mind for consumers.
The coronavirus proceeded to deal a crushing economic blow to businesses due to closures and massive revenue loss.
As the Herald reported last month, the number of small businesses in the Bay State that are open dropped by 37% since the start of the year, the researchers at Opportunity Insights estimate on their Economic Tracker.
Total small business revenue has nosedived by 44% compared to January.
“Massachusetts is seeing the same sort of national pattern with the economic crisis hitting smaller businesses particularly hard,” Sebi Devlin-Foltz, on the Opportunity Insights’ policy team, told the Herald.
A wave that rocks a cruise ship will swamp a sailboat. Many once-thriving restaurants, clubs and bars have shuttered for good.
There is hope for a brighter future, thanks to the rollout of the Pfizer and Moderna vaccines, but recovery will be a long slog. On a podcast with FiveThirtyEight, Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, noted that it will take about a year for society to get back to a semblance of business as usual. “I think as we get into fall, October, November, times like that, I think we will be very close to a degree of normality,” he said.
Unfortunately for small businesses, a spate of changes set to go into affect in the new year threaten to undermine efforts to stay afloat on the road to full strength.
The minimum wage will rise from $12.75 per hour to $13.50 per hour, and the minimum wage for tipped workers increases from $4.95 to $5.55 an hour, according to the State House News Service.
A rise in the minimum wage creates a ripple effect for payrolls. The Retailers Association of Massachusetts asserts that the 5.8% increase in the wage floor “will create further wage compression up through the wage scales, not just for new hires.”
So small businesses who remain open or hope to resume operations will do so with added costs.
This could not come at a worse time.
Employers will also face a massive increase in unemployment insurance trust fund contributions starting next year, thanks to the unprecedented surge in demand for joblessness benefits. The fund that pays out unemployment aid — funded almost entirely by employers — projects to end the year nearly $2.4 billion in the red, which would trigger a nearly 60% increase in the unemployment taxes that businesses pay.
As Christopher Carlozzi, Massachusetts state director of the National Federation of Independent Business, noted in the Herald, “unemployment taxes will rise precipitously next year to start replenishing the fund. A business owner that paid $539 for each employee in 2020 will see that cost rise to $858 next year. And it is expected to go up higher each year after. That’s a steep additional cost for small businesses, which will discourage filling vacant jobs or the creation of new ones in the recovery.”
At a time when small businesses need all the help they can get to survive, they are being hobbled by this new legislation.
One small bright spot: Gov. Charlie Baker filed a bill to limit the unemployment trust fund contributions to about 17%. The Legislature must pass it — it won’t solve the problems small businesses face from wage hikes and the like, but it’s a step in the right direction.

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