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Feeling the squeeze

[preamble]Small businesses don’t have the clout. Yet we employ more people than all the big names combined. This “failed European” thinking is not welcome in America – as Europe is and has failed on everything using the same tactics we are now embracing, so we too shall fail. when this folly ends[backtopost]
Crains New York
By

Stephen Werther woke up March 29 to discover the cost of doing business in New York had risen again. Next year, the owner of Wink fashion boutiques will shell out around $220,000 before he sells a single sundress.

The night before, City Council Speaker Christine Quinn and labor leaders had hammered out a deal that would require thousands of small businesses to offer workers five paid days off a year. For Mr. Werther, that means an additional $80,000 after he’d already budgeted an extra $140,000 to comply with the new federal health insurance mandate.

“Unfortunately, small businesses don’t have much political clout,” Mr. Werther said.

Business owners like Mr. Werther are feeling betrayed these days. Despite lip service from mayoral candidates and other politicians about small business being the city’s—and the country’s—economic backbone, entrepreneurs are reeling from a slew of new rules and regulations enacted at every level of government. Obamacare and paid sick leave are both slated to go into effect in 2014. Last month, state legislators increased New York’s minimum wage. Additionally, the City Council enacted the nation’s broadest statute giving prospective employees the right to sue for not being hired. And last week, the council held a hearing on a bill that would bar employers from using credit checks in hiring. Together, the new measures have heightened anxiety for employers already dealing with the high cost and bureaucratic hurdles of doing business in New York City.

‘Insensitive’ officials

“Individually, each is enough to make us question doing business, but all at the same time?” said Michael Sinensky, who owns six bars in Manhattan, including the popular Village Pourhouse. “It blows my mind how insensitive the elected officials can be to not realize this.”

While the smallest firms receive exemptions in the sick-leave bill and tax credits to pay for Obamacare, employers of a certain size, especially retailers and restaurants with more than 50 employees, are too big to benefit and too small to easily absorb the costs, owners say.

“We didn’t make $500 million this year,” said Jeremy Merrin, owner of Havana Central restaurants. “It’s a different kind of a business. I don’t think anyone in government is taking that into account.”

The veto-proof sick-days proposal applies to businesses with at least 20 employees starting next year and expands to cover firms with at least 15 employees in 2015. Each employee would get up to five paid days off.

Supporters of the measure say allowing sick workers to stay home will be good for business. “When someone’s sick and gives it to everyone else, it takes three or four weeks for it to pass,” said Taj Lawler, general manager at the Murray Hill location of Hummus Kitchen. Supporters also believe that restaurant workers will not abuse the policy because a paid day off means they lose their bread and butter: tips.

The benefits may be hard to calculate; the costs, however, are not. Wink’s Mr. Werther has about 80 employees at three stores in New York City. Five days a year comes out to about $1,000 per employee.

Mr. Sinensky will pay $100,000 more in wages to give his approximately 250 employees paid days off. While his revenue is growing—to $20 million in 2012, with an expected increase of 50% in 2013—New York profits are not. Because of rent increases, fines and other fees, Mr. Sinensky saw his Manhattan profit decline 67% last year, he said.

“We’re not looking to grow in New York anymore,” said Mr. Sinensky, who is looking across the Hudson to New Jersey, where he’s opened or invested in five businesses in the past two years, creating 500 jobs.

Mr. Merrin, meanwhile, has opened his two newest locations in Westchester and on Long Island and said he is not interested in adding to his two original New York City outposts.

The impact of the employee discrimination bill passed over Mayor Michael Bloomberg’s veto in March is also worrisome, business owners say. The law says in part that a job applicant’s unemployed status cannot be taken into account. In his veto explanation, the mayor said the provision is rife with potential for nuisance lawsuits. To protect himself, Mr. Werther said he will start recording interviews.

DECLINE IN PROFIT in 2012 at Michael Sinensky’s six bars in Manhattan

“A lot of this is just political posturing,” Mr. Calo said. “[Politicians] make people think they’re doing something for them but in reality they’re not.”

The state minimum wage that will ultimately increase to $9 an hour will be felt even by businesses with few low-wage workers, according to Mr. Merrin.

“I don’t have any problems with the minimum wage, but it raises the tide for everything,” Mr. Merrin said. “Whatever the increase is in the minimum wage, you’ve got to kind of figure that your salaries are going to go up.”

Under the Affordable Care Act, businesses with 50 or more full-time employees will be required to either provide coverage or pay a tax. Mr. Lawler, the general manager at Hummus Kitchen who supports paid sick days, said the cost “could really bankrupt a restaurant.”

Owners will do what it takes to survive, and that could mean cutting hours. “No one will be full time,” he said. “That’s what restaurants will do.”

Mr. Werther provides coverage for his full-time employees, but does not consider 30 hours a week to be full time, which is the definition under Obamacare. The law will cost him about $140,000 and could mean less coverage for each employee.

“I consider offering health care to my full-time employees one of the most important achievements as an employer,” Mr. Werther said.

Now what was supposed to help his employees is likely to cost them. “This new health care law is going to force me to pass more of the expense of health care coverage to my employees,” he said.