New regulations mean higher costs for small businesses in Western Pennsylvania as owners struggle to comply
Les Neilly used to spend most of his time figuring out how to make a better canvas tarp.
Not lately. Neilly, who owns Neilly Canvas Goods Co. in the Strip District, now worries mostly about overtime pay, health care costs and counting employee hours.
“For a small business that can’t afford to have a full-time HR person, it is a little bit overwhelming,” said Neilly, who employs 12 people. “Not only are you trying to run a business, but you’re trying to keep up with the changes coming down the pipe that are getting thrown at us all at once.”
He isn’t the only small-business owner feeling overwhelmed by a slew of changes in employment laws. Requirements associated with the Affordable Care Act and overtime pay, and a potential hike in the minimum wage, have many small employers dizzy in trying to figure out how they are affected.
In addition to the additional costs mandated for pay and benefits, small-business owners say they are spending thousands of dollars on consultants, attorneys and staff hours on compliance requirements.
Though aimed at helping workers, the regulations could have the opposite effect if they force small firms — which provide roughly half of the nation’s jobs — to cut back on hiring or limit opportunities for promotion, said Suzanne Stoltenberg, spokeswoman for the National Federation of Independent Business, in Pennsylvania.
“It’s a huge part of the economy,” she said. “The problem is that when it’s a family business or a smaller business, the margins are much thinner. When you add these costs, it gets tough. And in some cases, it’s a breaking point.”
A federal law unveiled last week could increase pay for an estimated 4.2 million workers by raising the threshold under which salaried workers must be paid overtime, to $47,476 from $23,660. The new rules, which take effect Dec. 1, were mainly aimed at larger companies such as Wal-Mart and McDonald’s, which avoided paying overtime to lower-level employees by classifying them as managers. But the law will also affect an estimated 44 percent of small businesses, according to the NFIB.
Bethel Bakery is one of them. John Walsh, the bakery’s owner, said he would have to raise the combined pay for two of his employees by more than $20,000 to comply.
He can’t afford that kind of increase. So, he switched them to hourly pay, lowered their pay rate and calculated their overtime hours to equal what they get paid now.
Neither worker will see a change in their paychecks or hours worked. But he’s going to spend a lot more effort documenting their hours.
Walsh wouldn’t mind as much if he weren’t already swamped with paperwork because of the Affordable Care Act, he said. The law considers anyone who works 30 hours to be full time, a lower threshold than required for his other benefit programs, and aligning everything has been a challenge for his office manager.
“I think it puts a real burden on her, and at the end of the day, she has less time to spend on something more strategic that’s going to move the company toward positive change,” Walsh said.
The Priory Hospitality Group, owner of the Priory Hotel in the North Side, has kept hiring in check to avoid the regulatory burdens that come with the Affordable Care Act, said John Graf, president and CEO. Businesses with fewer than 50 full-time employees are exempt from the mandate to provide health insurance.
Priory has been careful not to go over that threshold, Graf said. He estimates that doing so would cost $10,000 in additional administrative costs alone.
“It’s going to be a whole lot of extra work for my controller, and we’d definitely have to hire a consultant to come in,” Graf said.
Bethel Bakery has avoided increases in its health insurance premiums, putting it in the minority of small businesses. An NFIB survey found that 63 percent of small business owners reported higher health insurance premiums last year.
A bigger cost concern for Walsh is a proposal to increase the minimum wage. Pennsylvania Gov. Tom Wolf signed an executive order in March to require companies that contract with the state to pay at least $10.15 per hour, and Wolf has proposed the same increase for the entire state. The minimum wage is currently $7.25.
Such a move could lead to the loss of 31,000 jobs in Pennsylvania, particularly among teenage workers, according to the state’s Independent Fiscal Office. Roughly 20 percent of Walsh’s 85 bakery employees are teenagers who he’d likely replace with older, more qualified staff to justify the higher wages.
“Not to say there might not be one or two that would be exceptional, very engaged, do quality work and be as productive as an adult, but I don’t see how anyone could afford to pay (everyone) at that level,” Walsh said.
Many of these complaints are overblown, said Ross Eisenbrey, vice president of the Economic Policy Institute, a Washington think tank. Changes to overtime pay and the minimum wage are long overdue and not that complicated to understand, he said. And businesses will not suffer any competitive disadvantage because everyone is being required to do it.
“People are always afraid of the unknown,” Eisenbrey said. “The minimum wage probably ought to go up every year, or every couple of years. In a sense, (business owners) have benefited from inaction.”
Small businesses will suffer a disadvantage, however, because they don’t have large accounting teams or human resources departments to help them, said Stoltenberg of the NFIB.
Neilly used to be able to handle most of these payroll and benefits tasks on his own. Not anymore.
“I’m trying to do the best I can, but I rely a lot on our accountant,” he said. “Depending on what the situation is, I also talk to an attorney. And that costs you money.
“Everything that is a result of these legislations, in one manner or another, costs the business undue burden.”
Chris Fleisher is a Tribune-Review staff writer. Reach him at 412-320-7854 or [email protected].