Consideration needed for small businesses in sick time policy

We all love our small, unique neighborhood businesses — restaurants, coffee shops, vintage and gift stores, yoga studios and more. These local businesses are a key reason that Minneapolis is a special place to live. But that uniqueness may be in jeopardy.

Minneapolis leaders have been working on creating an ordinance that would mandate businesses provide paid sick time to all employees. This is a great idea on the surface — we all want those who work in Minneapolis to be treated well and fairly. In order to attain an equitable outcome that serves the worker, the employer and the local buying customer, the drafting and implementation of such legislation should be done in a fashion that befits all these stakeholders. Much care must be taken so that small businesses that are surviving on very slim margins do not go out of business, creating gaps in the local tapestry of our business nodes — a much cherished character of our neighborhoods.

Matt Perry

On March 16, a city-appointed task force released its paid sick time policy recommendations to the City Council. These recommendations include mandating businesses with more than three employees provide paid sick time benefits.

The policy recommendations seem to make the assumption that businesses, even our neighborhood “micro” businesses, can absorb the cost of mandated paid sick time with little to no negative impact. While that may be true for some, a survey conducted by the Southwest Business Association (SWBA) tells us that there would be significant negative financial impact to our neighborhood new and micro businesses.

Nearly 100 businesses responded and told us that as small businesses grow and stabilize, they tend to “share the wealth.” Three themes emerged:

— Small businesses are truly small, with most under the 20th percentile of the U.S. Small Business Administration’s definition of small businesses.
— The number of years in business affects an owner’s ability to offer paid time off, particularly for new businesses under two years of age.
— Businesses with a smaller number of employees are less likely to have paid time off policies in place than those who have grown to employ a larger workforce.

A real-life example

We took a closer look at a local restaurant that reported the following numbers: $435,000 revenue, $170,000 cost of labor with 11 employees, and $255,000 operating expenses. This popular restaurant earns four out of five stars on Yelp and is a fixture in the neighborhood with family-friendly prices.

This business is owned by a woman who is a person of color. She averages 60 or more hours each a week and pays herself just $8.33 per hour. She has a passion for preparing great food and for providing superb service to her guests. When one of her 11 workers calls in sick, she gives them the time off and fills in for the missing employee — that is just the reality of running a small business.

Based on the proposed city paid sick time policy of 1 hour earned for every 30 hours worked for each employee, the estimated increase in labor costs will be 3.3 percent. For this micro business owner, that raises her labor costs to $175,610, which results in a 56 percent reduction in profit, leaving her with a mere $3,073 at the end of the year to reinvest in her business.

This business owner is not rich, works long hours and clearly has very little financial wiggle room. And she is not alone.

Local businesses are small

Nearly 80 percent of the businesses who responded to the survey are at or under the 20th percentile of the Small Business Administration’s definition of a small business. They are often putting in 60 to 80 hours a week in their establishments working hard right alongside their employees. The money to pay additional benefits isn’t coming from a large group of shareholders, but right out of their own pockets just as with our real-life example. For new business owners, paid sick time is an additional cost to an already high risk endeavor.

Our small local businesses treat their employees like family, and often this is literally the case. They want to provide competitive benefits to attract and retain good employees. When they cannot afford paid time off, they get creative in offering other benefits like flexi-scheduling, education/travel reimbursements and bonus pay or profit sharing.

We need to protect our small businesses

While some small businesses are able to offer paid sick time to all of their employees, the survey showed such a policy would have significant negative impacts on the majority of new and micro businesses.

The SWBA is developing a proposal we think would work for our neighborhood businesses — including exemptions for micro and new businesses. We are by no means stubbornly opposed to the creation of any policy around providing sick leave, but we do think this important action from our city leaders must be advanced carefully and with full understanding of potential unintended consequences. City leaders need to make sure that considerations for fragile neighborhood businesses are in place so they may grow and thrive to a point where they are able to offer more benefits.

Matt Perry is a 25 year resident of southwest Minneapolis, an active neighborhood volunteer, owner of a computer consulting business and president and founder of the 200-member Southwest Business Association.