Minimum wage increase may affect service, prices
Staff reporter
The cost of doing business just got higher.
People can argue the need for an increase in the minimum wage. After all, it's been 10 years since minimum wage increased from $4.75 to $5.15 per hour.
Just recently, the federal minimum wage increased from $5.15 per hour to $5.85, with significant increases to follow in the next two years of $6.55 in 2008 and $7.25 in 2008.
How is that affecting local businesses?
For those businesses that hire high school and college students, and have entry-level positions, it already has had a dramatic effect with more changes to come.
Carlsons' Grocery of Marion is a prime example of a business that already is feeling the affects.
With 35-38 full-time and part-time employees, half of them are high school students and being paid minimum wage or a little more.
For owners Greg, Linda, and Mitch Carlson not only did they adjust the minimum wage to meet the new standards but also gave other employees raises accordingly.
"We felt it was only fair to compensate our full-time employees with a wage adjustment," Greg Carlson said.
Employers not only have to come up with the revenue to pay the minimum wage increase but it also includes matching FICA.
FICA is the Federal Insurance Contributions Act which mandates employers withhold a set percentage of an employee's salary each pay period. FICA also requires employers to match the employees' amount and contribute to Social Security.
This fund provides retirement income and disability insurance, Medicare, and benefits for survivors.
Even though the minimum wage increase was only 70 cents, it impacts the profit margin of businesses in more ways than one.
How will this affect Carlsons' Grocery and its customers?
"Well, we might have to change the number of employees," Greg Carlson said, referring to fewer employees.
Customers may feel the effect at the check-out or for those businesses that cannot cut back on employees, consumers may have to make up the difference.
Nursing homes are required by law to have a specific number of employees to assist residents. Reducing the number of employees is not a viable option.
They may have to make up for the lost revenue by charging residents more each month.
For Legacy Park of Peabody, the minimum wage increase will not directly affect its bottom line because all of their employees are above the entry level pay.
The same is true for Golden Living Center of Marion.
For Tabor College of Hillsboro, the changes have a more dramatic effect.
Tabor is among those colleges that participate in the Federal Title IV Financial Aid programs where it receives grants for federal work-study programs to help fund on-campus jobs for students. The students then use those funds for their educational and living expenses.
"As a requirement (to participate in the program) colleges must pay no less than the federal minimum age to those federal work-study students," Kirby Fadenrecht, vice president for business and finance, "even thought the grant given to the college isn't adequate to cover all of the earnings."
For public relations purposes, the college also pays students with campus jobs who are not eligible for the federal work-study program the same wage as those students who are.
With the increase, the college will experience an increase in the cost of operation. Student employees are needed for service jobs in the cafeteria, maintenance and grounds department, library, science labs, sports programs, and as clerical assistance in administrative offices.
"The cost increase will have to be offset by reducing other expenses or by finding additional sources of revenue for the first year of implementation," Fadenrecht said.
The remaining incremental increases in subsequent years ($6.55 in 2008 and $7.25 in 2009) will be covered by increases in tuition, room and meal plans "if the college wishes to continue to provide all of the same services and programs it currently offers," Fadenrecht added. The increase would be "insignificant," he said, but could be as much as one to 1.5 percent increase in tuition or $173 to $259.
Convenience stores also will feel the pinch since the majority of their workers are paid minimum wage or a little more.
Laura Legg, manager of Ampride of Hillsboro and Marion, said owners Cooperative Grain and Supply hired a consultant to help research ways to better manage the 10 Marion employees and eight Hillsboro employees and operate the two stores.
Recently, the hours at the Marion location was reduced where it now closes at 10 p.m. instead of 11 p.m. Legg said that was sales related, not wage.
"We scrutinized the hours and evaluated the busy time," Legg said. "The sales dictated closing an hour earlier."
She noted that the Marion community seems to get up earlier in the morning and Hillsboro residents stay up later. So the Marion store opens earlier and closes earlier and the Hillsboro store opens later and stays open later.
Trent Elmquist of Sonic Drive In, Hillsboro, said with the new minimum wage law he had to bump up one-third to one-half of his crew to the new wage.
"I have to keep an eye on my labor numbers," Elmquist said, which could effect the operation of the store.
Store hours will remain the same until school starts and will close an hour earlier. Elmquist doesn't anticipate hours of operation to change but there may be fewer workers during the slower times of day.
There are some other businesses that are not affected.
Shreves Avery of Peabody State Bank said the change won't affect them because the hourly employees are above minimum wage.
Same way with Will Carpenter of Wilbur's Market, Florence, who has seven full-time and part-time employees at the Florence store.
"Minimum wage hasn't applied to us for a long time," Carpenter said. "I pay a little more and keep them instead of paying less and constantly training new people."
