The Minimum Wage at the Shop Level
While politicians and activists continue to call for an increase in the hourly minimum wage, the issue is much more than a debate for many shop owners, who are worrying about how their businesses can handle the increased labor costs. In some cities and parts of the country, shops are already paying more and dealing with the fall out, while others see any increase in the minimum wage as just a cost of doing business.
“I would start with the life lesson I learned years ago, ‘to pay minimum wage is to say I would pay you less if I could,’” said Dale Warmuth of Leon’s Car Care Center in Eureka, California.
Currently Warmuth’s home state has a set $10 an hour minimum wage, and his shop starts employees at $12. His shop already provides health insurance for employees after 30 days, including dental and vision insurance after 90 days. It also offers an IRA after a year on the job, while vacation pay is generated from the first day and available to employees after a full year on the job.
“As the minimum wage climbs further, we will continue to start our entry-level techs at about 20 percent over the minimum,” Warmuth added. “All hires here are full-time with very little time-and-a-half. Then there is California’s new mandated sick leave that provides 24 hours a year like unemployment insurance. Except the state has us pay it.”
All of these benefits should make for content workers, and proponents suggest happy workers are more productive. However, it does come at a price, and it still doesn’t automatically mean shop owners can expect to find the best workers for the job.
“Frankly we Californian business people should have our heads examined for putting up with such liberal legislation,” Warmuth said. “Truth is, given all the ridiculous benefits we still struggle to find new entry-level staff that can be critical thinkers.”
Today’s minimum wage is just one part of the Fair Labor Standards Act (FLSA), also referred to as the Wages and Hours Bill, which was first introduced in 1938 during the Great Depression when many people sought any and all jobs. The FLSA was created so businesses didn’t overwork employees. However, despite protests, the idea of a minimum wage wasn’t meant to actually create a living wage. It was merely a bar that set the lowest possible wage a business owner could pay.
It has, according to economists, largely kept up with inflation, yet in recent years has become a hotly debated topic over what is fair and what businesses should be forced to pay employees. It has also become part of a much larger debate on what is seen by some as income inequality, especially when many corporate CEOs and other executives are literally paid millions of dollars a year as base salary and regularly receive bonuses that exceed what most workers fail to earn in a year.
The problem with this issue, according to economists, is that raising the wage at the low end really won’t solve the issue of income inequality. A raise in the minimum wage for workers in the service sector likely won’t come at the expense of CEO salaries. It is also highly unlikely to affect large corporations — certainly not union-heavy industries such as auto manufacturing and mining where most, if not all, employees are already paid a base hourly wage in excess of the minimum wage — but it would target franchise and independently owned small businesses.
While the owners of these shops may be president and/or CEO in title for official business filings, most would agree they’re not making the big salaries of corporate CEOs or flying in private jets. As such, a raise in the minimum wage has been seen by some in the quick lube industry to be misguided and, moreover, could be far more than the small shop owners can handle given the current economic uncertainty.
“A minimum wage increase to $15 an hour would put this shop out of business,” said Layne Brase, of South Oak Express Lube in Owatonna, Minnesota, a state that has already changed the minimum wage for large employers and is set to see its minimum wage increase for small employers August 1, 2016. “I understand that things are expensive these days, but to drastically change the labor laws like that would be, in my opinion, the end of many small businesses, including mine.”
There are shops, however, in more expensive states that have had to address employee compensation, and those operators have accepted it as a price of doing business, at least in their particular market.
“We are already complying and increasing our wages to accommodate our employees,” said Maile Misiak, office manager of Kona Kwik Lube, LLC in Hawaii.
Misiak added that because of the extremely high cost of living in Hawaii it is difficult for any business owner to be too upset about the rise in the minimum wage, especially in the automotive industry.
“I have been following the labor laws diligently and they will be gradually increasing each year which enables us as businesses to include these numbers in our future projections for the business,” Misiak noted. “Our concerns regarding this matter are not that we will not be able to afford to pay our employees. Instead, we have been working towards helping our employees who wish to learn more about the automotive industry to study and to take their ASE certification tests if they are truly interested in being eligible to make even more money than the rising minimum wage — which is so much better these days than 30 years ago.”
Raises Across the Board
A largely unseen consequence of raising the minimum wage is how it will affect those veteran and seasoned employees who are already being paid more than the starting wage.
“It’s going to be interesting when entry-level positions open at $15,” said Dean Schwartz of Lloyd’s Tire & Auto Care in Santa Cruz, California. “The dynamics between employees may be a issue. There again it’s probably too early to see.”
Economists and shop owners alike have argued that a raise in the minimum wage could require some business owners to cut hours and, at the extreme, even let some employees go. Most shop owners NOLN spoke with for this article hoped it wouldn’t come to either case.
“As of now, we haven’t had to cut any hours,” Schwartz said.
As states raise their minimum wage, some shops will handle it accordingly, but for some, raises are already part of doing business.
“We adjust accordingly on an annual bases or when we feel it needs review,” said Pete Popoe of Auto Ace Express Lube in Duluth, Minnesota. “We also like to pay more than state minimums and this is common practice for us.”
In addition Popoe noted that the raises were across the board and that “all employees received a raise.”
Supporters and proponents of a raise to the national minimum wage have suggested it is about a fair living wage, and while few small business owners would want to run a sweat shop, many also argued you should pay based on what the job requires.
“Some jobs are just not worth $15 [an hour],” Brase said. “A basic lube technician job at my shop is not worth $15 an hour, neither are most jobs at fast food restaurants, service stores or many others. That is my opinion, as others have their own, but I am sure most other local small businesses would agree with me.”
One point Brase further emphasized was many of these jobs are not meant to be careers, nor are they meant to support a family.
“They are meant for high school workers, second jobs, or supplemental income,” Brase added. “This doesn’t mean these jobs are not important or the people doing them are bad or worthless, it just means that some things are not worth what they are asking.”
Warmuth agreed and explained his shop operates a little differently. With 55 years in the business, Warmuth has had to adapt to changing times, and this includes living in one of the most costly parts of the country. Leon’s Car Care Center is located in a remote part of California — five hours from San Francisco. This further means consumers must deal with the highest gasoline prices in the nation, and while many residents are happy to avoid the hassles of the big city, many people move to greener pastures, which has also affected the potential employee talent pool.
“Youth, once out of high school or the junior college, move elsewhere,” Warmuth said. “Our population has not grown more than 5 percent in 30 years.”
As such, he has felt compelled to offer higher starting wages to afford the better choices, while pay for techs tops out at about $16 an hour currently.
The issue of fair compensation becomes even more complicated based on a recent ruling by the Department of Labor (DOL) regarding overtime pay, which increased the salary threshold for overtime eligibility to $47,476 – a 100-percent increase. With an effective date of December 1, 2016, it could impact many small businesses such as independently owned quick lube operations.
“There will definitely be shop owners who will have to reclassify employees from salaried to hourly,” said Bill Hanvey, president and CEO of the Auto Care Association. “They will struggle with coverage if they have to limit techs, tech helpers and service advisors to 40-hour work weeks. Schedules will be shifted and there will likely be different ways to adapt — raising certain wages, laying off others. Factoring in other benefits, it will not be easy to get it right, and it will take time.”
The Customer Will Pay More
As the increase to the minimum wage — along with overtime pay — becomes less debate and actually is enacted, the issue is how it will be paid for, notably by those businesses that don’t reduce employee hours. Essentially, it would come down to charging more for services offered.
“When it hits $15 the consumer is going to be directly affected,” Schwartz said. “The cost of doing business goes up, and with it, the cost of the goods and services goes up. We can’t absorb all of these costs. We have not raised prices yet, but as the rate increases, we will. I’m not sure how customers are going to respond.”
Even as Auto Ace Express Lube in Duluth was able to raise the wages of its employees, Popoe said it is too early to tell what it will mean for the customers.
“It would all depend on traffic flow and profit margins,” he said. “The cost of raw goods would also increase due to higher wages being passed on by suppliers.”
The debate will likely only continue, and shop owners will have to face hard choices in the months to come.