Businesses & Money

To do:

1. access to capital for small businesses

• If firms have to pay more for inputs, we will have to reduce cost of capital

Minimum wage criteria

General

The following information taken from (USDL)

• Under the Fair Labor Standards Act (FLSA), the federal minimum wage for covered nonexempt employees is $7.25 per hour.
• Effective since July 24, 2009.
• Some states have minimum wage criteria that diverges from the federal government. Where an employee is subject to both the state and federal minimum wage laws, the employee is entitled to the higher minimum wage rate.
• Enforced by the Wage and Hour Division of the U.S. Department of Labor.

Exceptions

The following information taken from (USDL)

• Various minimum wage exceptions apply under specific circumstances to workers with disabilities, full-time students, youth under age 20 in their first 90 consecutive calendar days of employment, tipped employees, and student-learners.
• Tipped Workers: Minimum wage for tipped employees is $2.13 an hour in direct wages, if that amount plus the tips received equal at least the federal minimum wage. If an employee's tips combined with the employer's direct wages of at least $2.13 an hour do not equal the federal minimum hourly wage, the employer must make up the difference.
• Disabled workers: Employers can apply for a certificate to pay less than the minimum wage to anyone "whose earning or productive capacity is impaired by a physical or mental disability, including those relating to age or injury." Hourly pay is based on the employer's assessment of their productivity relative to the productivity of non-disabled workers.
• Very small businesses: Only applies to employees of enterprises that have annual gross volume of sales or business done of at least $500,000 and haven't done business across state lines.

Increase minimum wage?

• Nonpartisan Congressional Budget Office compares trade-offs:
  • Compared raising the minimum wage to $10.10 and to $9.00. Under the $10.10 scenario, there would likely be a reduction of about 500,000 workers across the labor market, as businesses shed jobs, but about 16.5 million low-wage workers would see substantial gains in their earnings in an average week. Under the $9.00 scenario, the labor force would see a reduction of 100,000 jobs, but an estimated 7.6 million low-wage workers would see a boost in their weekly earnings. (CBO)
• A Purdue University study released in July 2015 suggests that paying fast-food restaurant employees $15 an hour could lead to higher prices. Prices at those businesses could increase by an estimated 4.3%, according to the report. (Purdue)
• Critics assert that the real effects of minimum-wage increases are negative: they hurt businesses, raise prices and ultimately are counterproductive for the working poor, as they can lead to unemployment. (JR)
• At the macro level, a substantial increase in the federal minimum wage is likely to have broad effects, with some studies predicting that it could “ripple” across the economy, boosting the wages of nearly 30% of the American workforce. (JR)
• Many conflicting ideas on overall minimum wage increase. Perhaps eliminating the tipped worker minimum of $2.13 would be beneficial to worker. Ultimately, raising or keeping minimum wage has trade-offs that must be weighed.

Healthcare's impact on business

Status quo

• The Bureau of Labor Statistics found only 57 percent of workers at firms with 100 employees or less have access to employer-sponsored health care. (BLS)
• In a recent national survey by Bank of America, 72 percent of small-business owners said they are concerned about health-care costs. (Bank of America Report)
• Some experts say that looking to lower health-care costs significantly isn't realistic for many firms and that slowing increases is more realistic. (CNBC)
  • "Reducing your cost over time from one year to the next is probably an unrealistic standard. A company that is keeping its benefits costs in line with its compensation costs is probably doing exactly right." -Alan Cohen, chief strategy officer and co-founder of Liazon

Ways small businesses can save on healthcare

Following information from (CNBC) unless otherwise noted.

Negotiate private plans

• Some private insurance premiums are negotiable, especially in the 50-99 employee range.

SHOP

• As of Nov. 15, small businesses with 50 or fewer "full-time equivalent employees" under the Affordable Care Act's formula can now turn to the Small Business Health Options (SHOP) exchange.
• SHOP is "essentially a federal or state-run supermarket—or marketplace—where businesses can shop for small-business plans" according to Sally Poblete.
• With SHOP, small businesses can define the amount of money they wants to contribute to premiums and allow employees to select from the health and dental plans, depending on employees' needs.
• Some businesses qualify for tax credits when they purchase insurance through SHOP.
• Coverage for an individual plan sold through the exchanges can be customized to the individual - they will not necessarily get inferior coverage by switching to SHOP.
• See this (GAO report) on the reasons for low SHOP enrollment.

Convert from group to individual plans / HSA to HRA accounts

• Businesses who offer money to buy individual plans vs covering group plans often fare better
• Alternatively, employers set up health reimbursement accounts (HRA). The advantage of an HRA over a health savings account (HSA) is that the plan can be structured so that if an employee does not use the money in an HRA, the money will still belong to the company.

Direct primary care

• Direct primary care works by charging users a monthly fee for unrestricted access to their doctor, instead of billing patients' insurance
• Costs ~$80/month and ~$1000/year for individuals and some practices offer discounts to employers
• "Direct primary care, coupled with a high-deductible health insurance plan, can oftentimes be an outstanding and relatively affordable solution for entrepreneurs and small business."
• Can often save 12 percent to 15 percent over what a firm would spend for traditional health insurance.

Workplace health programs

Information in this section taken from (CDC)

• CDC defines "workplace health programs" as a coordinated and comprehensive set of strategies which include programs, policies, benefits, environmental supports, and links to the surrounding community designed to meet the health and safety needs of all employees.
• Keeps healthy employees in the “low-risk” category by promoting health maintenance, while also targeting those unhealthy employees in the higher-risk categories, therefore lowering overall health insurance costs.
• A systematic review of 56 published studies of worksite health programs showed that well-implemented workplace health programs can lead to 25% savings each on absenteeism, health care costs, and workers’ compensation and disability management claims costs.

Raising capital; Debt and small business

• Only 29 percent of small business owners said they’ve applied for a business loan over the last two years. (Bank of America)
  • 90% of those who applied were approved
• More than half (58%) of Millennial small business owners applied for a business loan within the last two years, nearly twice that of Gen-Xers (30%). Friends and family are an important source of funding for Millennial small business owners, with 30% saying they’ve received a loan from their loved ones in the past. Millennial small business owners are nearly five times as likely as Gen-Xers to have received past funding from a peer-to-peer network, while Boomers (25 %) were more than twice as likely as Millennials (10 %) to have received funding from a home equity loan/other personal debt. (Bank of America)
• Negative correlation between student debt and country wide entrepreneurship rates among millennials (Kauffman)
  • "Saddled with student loan debt, millennials can't afford to be entrepreneurs," according to 2015 state of entrepreneurship report from the Kauffman Foundation, a nonprofit devoted to studying entrepreneurship.
  • Entrepreneurs need equity to invest on their businesses, and loans can affect a budding entrepreneur’s net worth in the short and long term. (PEW Research Center)
• Student loans have been demonstrated to push people away lower-paying public service jobs – and it is not a leap to think that it would also push people to away from risky entrepreneurial ventures. (Kauffman)
• The share of new entrepreneurs in the 20 to 34-year old age group has gone down dramatically, from 34.8% in 1996 to 22.7% in 2013. (Kauffman)
• Given shifts among younger workers, the concern now is whether entrepreneurship rates in total (including older workers) will continue to recover from the recession lows or plateau to a kind of "new normal" of lower entrepreneurship activity. (CNBC)