Small Businesses Brace for $15 Minimum Wage Hike

Starting this week, millions of minimum wage workers will start receiving fatter paychecks.

On Jan. 1, 18 states and 19 cities across the country increased their minimum wages--many of them going up to between $12 and $15 an hour.

The left-leaning think tank Economic Policy Institute estimates that around 4.5 million workers, particularly those in low-wage occupations such as retail, restaurant, or healthcare services stand to benefit. The federal minimum wage has been just $7.25 an hour since 2009. 

Local legislation and voter-approved ballot measures as well as inflated prices of consumer goods have contributed to the wage hikes in places such as Seattle, Minneapolis, and Flagstaff, Arizona. In coastal cities where the cost of living has soared, wage campaigns--such as the Fight for $15 that striking fast food workers began in 2012--have helped build momentum for the increases. (Additional worker-driven wage campaigns are under way in at least 14 cities and three states this year.)

Proponents of the increases--including companies such as Allstate, Aetna, and First Green Bank, all of whom support a $15 minimum wage--argue the extra income may boost economic growth and help address inequality. After all, especially in coastal cities, the cost of living continues to rise faster than worker pay. 

In high-priced Silicon Valley--where even a six-figure salary is now considered low-income, according to the U.S. Department of Housing and Urban Development--both Sunnyvale and Mountain View adopted a $15 minimum wage, effective this week, with overwhelming public support. The response from small business owners in these communities, however, is more complicated.

Regina Chan, who owns Prolific Oven, a family-run cafe and bakery that has been around since 1980, says that the wage hike puts her in a difficult position.The cafe currently has three locations--Palo Alto, Santa Clara, and Sunnyvale--but closed a fourth Fremont location last week in part due to the wage hike.

"I definitely understand where this necessity for this hike is coming from...I pay rent, I know exactly how expensive it is. Of course I want the best for my employees," says Chan, who refers to her employees as "family." "I think it's important they work and live in the same areas, instead of being forced to live outside. So I understand, being a resident."

But, just last weekend, she and her family were discussing the future of Prolific Oven. "We are struggling. A change like this is going to make it hard to keep our doors open," she says. "It seems unfair for the employees to lose money, but the big picture is that I need to keep the doors open because if I don't, everyone gets laid off." 

Chan says she thought about putting a surcharge on everyone's bill, but instead, she decided to tell her customers the truth: that the high costs will possibly put her out of business this year. She wants to hear what they think before she decides what to do next.

Betty Jo Toccoli, president of California Small Business Owner Association, predicts the higher labor costs will force many area business owners to reduce the number of workers. In addition, students and entry-level workers are likely to see fewer job opportunities, she says, because businesses can't afford to pay $15 an hour for employees with little to no job experience. 

Rahul Nair, manager of The Oxford, a modern gastropub and restaurant in Sunnyvale, CA, says he plans to spend the next three months analyzing the nitty gritty details of his business strategy. "We are trying to use information to most effectively use our man hours," he says. An example he gives is designing the menu to use labor more effectively, meaning possibly reducing the number of menu offerings at certain times depending on what the data shows. Still, he says, "I think this is going to add stress on to business, as this increase in minimum wage will create a huge impact on payroll."

In Silicon Valley at least, Nair says the higher wages are likely to worsen a unique challenge that restaurant owners have already been dealing with for years--competing with tech companies who can attract restaurant workers with much higher pay to staff their in-office cafeterias. 

"We can't stand a chance with them," he says.