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Small businesses prepare for bottom-line changes with new minimum wage

Contact ReporterCatonsville Times

In anticipation of the statewide minimum wage hike next month, business owners are preparing differently for the effects on labor costs, hours and prices.

In the absence of a county minimum wage, businesses must comply with the state minimum, which will rise from $8.75 to $9.25 an hour starting July 1 as part of a three-year initiative to increase the wage. Prince George's and Montgomery counties have set higher minimum wages.

In 2014, then-Gov. Martin O'Malley signed legislation to incrementally increase the minimum wage to $10.10 by July 1, 2018. The law was meant to relieve the burden on business owners through gradual increases, while also mandating employers eventually pay more than the previous minimum of $7.25.

In Maryland, 16 percent of hourly wage workers earn minimum wage, according to federal labor estimates.

But for some businesses, any statewide increase is cause for concern.

"[Politicians] don't realize they're gonna affect a huge population, especially small business owners," said Rehan Khan, the owner of Umami Global Bistro in Catonsville. The restaurant has about 12 employees, Khan said, and all new hires are paid the state minimum wage during a three-week training period.

Those new hires, as well as seasonal workers who return during school breaks, will see both the consequences and benefits of the wage increase. The level of training might suffer, Khan said, and employees will have to come equipped with certain skills to be hired.

"Right now I have no problem training somebody, because minimum wage is not too high. I can train them in detail," Khan said. "But if it's $15 per hour in the future, $10, $11, I have to make sure they have some kind of skill level. I can't train them from the beginning."

Maryland's minimum wage surpassed the federal minimum of $7.25 after the 2014 legislation was passed, making it one of 29 states plus the District of Columbia that has minimum wage rates higher than the federal rate.

O'Malley signed the bill into law while President Barack Obama advocated for a federal minimum wage increase to $10.10. After the legislation passed, Obama encouraged Congress to follow the state's lead and ensure "no American who works full time has to raise a family in poverty." A federal minimum was created during the Great Depression to protect workers.

About 40 percent of the 25 employees at ZIPS Dry Cleaners in Catonsville make minimum wage. Bashir Shams, the owner of the franchised shop, said the July 1 increase will make him more conscious of employees' hours.

Price increases are currently off the table for Shams' stores, which advertise the flat $2.29 dry cleaning rate on signs outside. Shams called this a challenge, adding that the labor-intensive industry he works in means the labor costs would likely increase.

"Whenever the minimum wage goes up, each dollar that goes up, it's going to be about $40,000 or $50,000 a year cost to increase for our business," he said. "What people don't realize is that somebody's going to have to pay for that."

Tim Gindling, an economics professor at the University of Maryland, Baltimore County, said most estimates show the wage increases outweigh potential employment decreases, resulting in increased incomes for low-wage workers.

But there are still workers who end up losing their jobs more after wage increases, Gindling said, with the most vulnerable being young people, those with lower education levels, lower-skilled workers and part-time employees.

"There's something important about valuing work and providing dignity to workers," Gindling said. "One thing I think is missed in the minimum wage debate is there should be some consideration for how to soften the blow for the people who actually do lose when minimum wages do go up."

Although the overall increase over the three years will have a significant cumulative impact on employment, Gindling said, the state's incremental increase provides employers and workers with an adjustment period to prepare for possible increases in labor costs and prices.

The minimum wage increase could boost the local economy by putting more money into workers' pockets — money that would go right back into local businesses when those workers have more to spend, said Charly Carter, director of Maryland Working Families, a nonprofit advocacy group.

"There will be business owners who will … always decry any kind of wage increase," Carter said, "but I think certainly with the graduated implementation that it allows business owners to plan."

Greater Arbutus Business Association President Bettina Tebo said she's concerned the state dictating what entrepreneurs pay their employees will cost workers their jobs in the long run, especially for small, family-owned businesses.

"Most business owners are fair in their paying wage," she said. "I just don't agree with the mandate."

Joseph Chilcoat, who co-owns and operates several 7-Eleven convenience stores in the county, said the lowest starting wage for his employees is $9.50 — 25 cents above the minimum wage after July 1 — because he doesn't "expect minimum effort" from his employees.

After next year's increase to $10.10, he'll said he will still pay his employees at the franchises more than the minimum and raise prices, but can't afford to reduce employee hours.

"I don't have any wiggle room there, we're already working as hard as we can," he said. "I can't work any more hours."

For years Baltimore City has been wrestling with proposals to boost the city's minimum wage to $15 per hour, which would follow the lead of cities such as Los Angeles and New York. In March, Baltimore Mayor Catherine Pugh vetoed legislation that would raise the city's wage to $15 by 2022, saying she would stick to state law to mitigate the toll on businesses.

Mike O'Halloran, the director of Maryland's National Federation of Independent Business, a small business advocacy group, said the minimum wage increase — regardless of its slow progression — has forced businesses to do whatever it takes to stay afloat and competitive.

"You can't get increased wages at a job that doesn't exist," O'Halloran said. "That's what I think lawmakers need to understand."

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