The high cost of employment

By From page A6 | April 24, 2014

There are repercussions from raising the minimum wage. For those who do not, nor have ever had, the responsibility — as owner, CEO, CFO or otherwise — for paying the bills for supplies and other essentials to run the business, as well as paying employees along with payroll taxes and fees, raising the minimum wage seems simple.

It is called naiveté or, better still, living in a utopian bubble. How many employees really know the costs of employing a person? The employer must have general insurance that includes liability, the costs for which are dependent on the type of business and the risks involved. Required workman’s compensation insurance costs are based on risk of injury in types of work done by employees.

Then there’s FICA, which until 2011 was 12.40 percent, split equally between the employee and employer. In 2011, the employee share was decreased to 4.20 percent, with the employer’s share remaining at 6.20 percent. The Medicare tax is 1.45 percent for both the employee and the employer. In addition, the employer pays federal unemployment tax.

All these taxes require reporting to the IRS on a mandated schedule, with additional quarterly and annual reports, all requiring specific forms, filed by specific dates.

The state also requires employer taxes. The schedule for the employer to make the deposits to the state Employment Development Department is dependent on the number of employees and the payroll, and the summary reports quarterly and annually. The taxes applied are a percentage set by the EDD of the gross wages paid and include the unemployment insurance and employment training tax.

The employer also must report and pay to the IRS the federal income tax, the FICA and the Medicare deductions collected from the employee, and to the State EDD, the personal income tax and the state disability insurance deductions collected from the employee. Any additional benefits are costs.

To raise the minimum wage means that for all those now at current minimum wage or those in a higher position, but at the proposed minimum wage, the wages will have to be raised. How much can a small business pay, before costs and risks exceed income? Will consumers pay what will be increased prices for “end product”?

The city of Davis already has a budget problem, the solution for which is not more tax.

Vernette Marsh

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