R.I. business owner says a minimum wage hike could endanger his ‘solvency’

Updated at 3:30 p.m.

PAWTUCKET – Bob Wheeler says the potential passage of a minimum wage increase by Rhode Island lawmakers could lead him to make some hard decisions and put his business in jeopardy.

Wheeler, who owns Friends of Toto LLC, a dog day care business, says a wage hike to $15 per hour that state lawmakers are considering could lead him to increase costs, while having to reduce his staff of 14, and/or eliminate health benefits and a 401(k) matching plan. That, he said, could spell “big trouble” for his business.

“The solvency of my business is very much on the line,” said Wheeler, who noted that he received two rounds of Paycheck Protection Program loans for his business, which he has owned and operated for over four years. “We’re trying to do everything we can to stay afloat.”

Wheeler said he is wrestling with the Catch 22 the wage hike presents, since he supports the need for raising wages, but he feels the cost could be prohibitive for his business.

- Advertisement -

Christopher Carlozzi, state director of the National Federation of Independent Businesses, said Wheeler’s concerns are legitimate and applicable to any small business trying to survive in the middle of a pandemic.

“For small employers this is going to be a hit,” said Carlozzi, who noted that employers “have been dealing with increased costs for PPE, or Plexiglass, or retrofitting their business to operate during the pandemic. It’s a … major concern for a lot of small businesses.”

Carlozzi said the wage hike, which he expects will be approved this year by the General Assembly, could lead to the rollback of worker’s hours, reduction of staff, and increased prices of services or goods. The problem with increasing prices, he said, is that dampening consumer appetite can be “harmful” to a business.

A wage increase “is something that Rhode Island should take a pause on – on any labor cost increase for small employers,” said Carlozzi. “They need to be taking a path to encourage job growth and job retention, because these increases aren’t happening in a vacuum.”

The NFIB conducts a national survey of its membership every month and results regarding a proposed $15 federal wage hike “were pretty staggering,” he said. The survey indicated that 74% said a wage hike would lead to a negative effect. 58% said they would reduce the workforce. 60% would reduce workers hours. 67% would leave an open position unfilled and 87% would increase prices.

In her State of the State address on Feb. 3, Gov. Gina M. Raimondo said, “We’ve raised the minimum wage four times. Let’s keep going. Now, more than ever, hardworking people need a raise.”

That same day, the Senate Labor Committee voted 7-4 for passage of a bill calling for a wage increase from $11.50 to $15 an hour by 2024. The state’s minimum wage would be phased in as follows: $12.25 by Oct. 1, 2021; $13 by Oct. 1, 2022; $14 by Oct. 1, 2023 and $15 by Oct. 1, 2024.

The bill, S.1, An Act Relating to Labor and Labor Relations–Minimum Wages, has moved to the Senate for a vote this week.

Senators who opposed the bill are Jessica De la Cruz, R-Burrillville, and Frank Lombardo, III, D, Johnston, Frank S. Lombardi, D-Cranston, and Roger A. Picard, D-Woonsocket.

Senate Majority Leader Michael McCaffrey, D-Warwick, co-sponsor of the bill, said Rhode Island has “competition from Connecticut and Massachusetts, who are already on pathways to a $15 an hour minimum wage. We are behind them.” He spoke about the issue during the Greater Providence Chamber of Commerce’s virtual event on Monday.

Massachusetts began its minimum wage increase phasing in on Jan. 1, 2021, with the wage increasing from $12.75 to $13.50. It will increase to $14.25 in 2022 and then $15 in 2023.

McCaffrey noted that under the proposed legislation, Rhode Island will have a gradual phasing in process. He also said the legislature is aware of concerns from business owners that employees will flee to neighboring states where the minimum wage is higher. “We want to keep these people in Rhode Island, because they are quality, hardworking people.”

“The other thing is they say it is going to cost businesses more money if the state raises the minimum wage,” said McCaffrey. “However, there is also a cost to businesses when there is a turnover of employees when they leave Rhode Island” and go to another state to earn more money.

He said phasing in of the increase is designed to “make it predictable for the business community, so they know when it is going to happen, and how it is going to happen.” He said it is being done that way so business owners can “prepare for the increase.”

R.I. Senate President Dominick J. Ruggerio also voiced support for the minimum wage increase. “We need to ensure that Rhode Island workers earn a fair wage. Even on $15 an hour, it is very difficult to make ends meet,” he said. “Additionally, we need to stay competitive with neighboring states. Both Massachusetts and Connecticut are scheduled to reach a $15 an hour minimum wage in 2023. It will be difficult to attract and retain workers in Rhode Island if they can make significantly more just over the border. The Senate has voted each year to increase the minimum wage steadily. Senate Bill No. 1 continues on a gradual path so that increases are incremental instead of all at once, and it provides predictability.”

Wheeler said he is grateful for the phasing in of the increase, but he thinks there could be a more viable solution, such as implementing an “effective wage.” That would mean permitting employers’ contributions for benefits and 401K matches to serve as “compensation toward an employee’s hourly wage.”

Wheeler said while a healthy business should have payroll expenses in the 40% range of gross receipts. Last year, due to COVID-19, his payroll costs were 88% of total revenue. Prior to the pandemic, his numbers were in the high 50% or low 60% range, trending upwards.

The challenge, he said, is retaining quality talent, paying competitive wages, earning personal income, and operating a competitively priced business.

Another problem, Wheeler says, is financial impact from the state’s business fees, including the unemployment insurance tax on businesses. He was recently surprised by receipt of a $12,000 unemployment insurance tax bill.

“These ancillary costs are not negligible. I don’t know if people understand what that number actually means,” he said, noting that a $12,000 tax bill is on the low end of the scale since his business has no claims against it.

The R.I. Department of Revenue told him that if he had one claim against his business it could cost him “about $24,000 or $30,000. Those are crazy numbers,” he said. “Employees don’t see that a business is paying that insurance for them.”

Lt. Gov. Daniel J. McKee, the incoming governor, said previously that he has an interest in addressing the state’s business fee structure. It is something he intends to tackle after he is sworn into office.

In the meantime, like other business owners, Wheeler finds himself clinging to hope that the vaccine will be effective and aid the easing of restrictions. His business relies on the travel industry, since a large percentage of his customers board dogs at his facility while traveling, or on vacation.

Wheeler said that he faces “no choice” in trying to find a way to adapt his business to accommodate the wage increase.

“I wish that any policymaker that is gung-ho about this; I wish they would call me,” he said. “I would invite them in to look at my books and tell me where I’m going wrong here.”

Wheeler said he believes that the legislature “means well and doesn’t want to put anybody out of business.” But he thinks they can achieve their goal “by looking at effective wages.”

If not, he said, “I think the consequence is going to be averse to the very people that they are trying to help.”

(SUBS 7TH paragraph with Carlozzi expectation of General Assembly passage. Minor edits throughout.)

Cassius Shuman is a PBN staff writer. You may reach him at Shuman@PBN.com.

1 COMMENT

  1. My experience from being a member of the Chamber of Commerce for several years representing a major Fortune 50 company as opposed to the dominant membership of small business owners was that many of them were provincial, undisciplined, totally self absorbed with a resentment over doing anything they didn’t like to do. In all my years working, I never encountered a bigger group of whiners. Whether that is the case here, I don’t know but it is food for thought.