What's The Answer?

     Anyone who owns their own business will probably agree with this next statement.  The business owns you.  At the end of the day, when the employees go home, if there is something that needs attended to, it's usually the owners responsibility.  

     I was reading an article about the minimum wage needing to be raised to $10 an hour.  In this day and age, that's not a lot of money, unless it's your first job, then it seems like a fortune.   

     As much as I dislike math, I'm going to try something here, to convey a thought, somewhere in the back of my grey matter, to the screen that I'm starring at.

     A 40 hour work week at $8.25 an hour for 52 weeks is roughly a little over $17,000 a year......before taxes.  After taxes it's about $14,000, not quite, but for the sake of simplicity I'll try to round up or down to the closest bunch of zeros. 

     So here's a small business with 10 employees and each employee makes $8.25 an hour.  The company makes a widget that is quite useful and everyone thinks they need one, so business is pretty good.  The owners of the company love their employees and treat them fairly, even providing a week or two paid vacation for each employee.  Everybody works a forty hour week, Monday through Friday, 8 a.m. to 5 p.m., and has the weekends off. 

     At the end of the year, the small business has paid out a bit more than $137,000 in wages and the taxes on those wages amounted to a little over $34,000.  The company withholds those taxes from the employee's wages and pays them so the employee doesn't have to mess with it and because it's just one of the company's requirements by the government.

     Now here is something a lot of people don't know.  Not only did the company withhold those payroll taxes and make sure they were accounted for and paid, which takes lots of time and paperwork or they must pay someone else to do it for them, the company had to match some of those taxes.

     What?!?

     Yes, the company has to match whatever the employee is taxed on Social Security and Medicare.  Plus, the company has to pay for workman's compensation and unemployment.  Why is this?  I'm not sure, it has more to do with the government.  The best analogy I can come up with is when a parent looks at a child and says, "Well, that's just the way it is."

     The workman's compensation tax rate varies due to the particular occupation and the history of the business.  Same for the unemployment tax rate.

     When a business owner hears someone say they are drawing unemployment because they have paid into it for years, umm....nope, not so much.  The company pays into it.

     So back to this small business.  Not only did they take care of all the employee taxes, they paid nearly an extra $20,000 in taxes and insurances, just for having employees.

     Now they are going to raise their employee's wages to $10 an hour.  At years end, the wages paid are around $166,000, the taxes on those wages are about $42,000 and what the company has to match and provide jumped to about $23,000.  

     The company realizes that they are going to have to raise the price of their widget.  Consumers see the price hike and decide they can actually live without it and sales begin to decline.  The company is faced with two options, lose money or layoff employees.  So much for the raise.

       In my illustration, I'm not talking about huge mega corporations or organizations, I'm looking at the small business owner, who's trying to stay afloat in a messy sea.  Even though the example was very simple, there was no mention of health insurance cost that many small businesses are now faced with.

     What's the answer?  I don't know, but  without small businesses, the spirit of entrepreneurship dies.