Seattle Area Business Owners Braving Risk, and July Employment Data

     It's an interesting time. We saw an increase in protests in downtown Seattle (and in other areas of the country) pushing for a $15 minimum wage for fast food workers. Protesters pressuring other minimum wage workers to join them with chants of "You don't need the boss; the boss needs you!" For the record, I believe the employer-employee relationship is a symbiotic one. Tom Douglas gave some of his employees an increase of $15 per hour, but thinks the government should stay out of it (applause to Tom from me, for sure). 

     We sit on the eve of Oct. 1st, a kick-off compliance day of the Affordable Care Act, when employers are to notify employees of their coverage options under their respective state and/or federal SHOP exchanges and beyond - here in Washington, those coverage options haven't been rolled out, due to delays...so we wait.

For Small Business Employers considering hiring, it would be easy to hear only one thing - RISK

     BUT...this month I worked with an influx of start up companies, as well as a number of companies who decided to move from in-house to outsourcing of payroll compliance services. They wanted to capture back their time and hurdle risk; not ignore it, and not run from it. Each of these local owners, officers, and managers, from different industries, and with different backgrounds, has a positive-growth outlook for their economic future and made the decision to move forward in spite of the surrounding risk. They will be hiring.

     That's Entrepreneurship. That's Ownership.

Data Overview:

Small businesses with 1-19 employees had a net gain of 82,000 jobs nationally in July (ADP/NER)

Professional/Business Services Industry had a net gain of 49,000 jobs nationally (ADP/NER)

US Franchise Jobs growth slowed to just over 12,000 in July (ADP/NFR)

WA State had a gain of over 6,000 jobs (ADP/RER)

WA State Preliminary Unemployment Rate dropped to 7.4% in July (BLS)

WA State private sector has added an estimated 74,000 jobs in the last year: July 2012-July2013 (BLS)

The Future of Seattle Area Restaurant Ownership?

     There is a case to be made that restaurant ownership is going to require a more skilled and knowledgable business owner in the future. Some major regulation changes and other surprising challenges have made their way onto the plates of restaurant owners, and not everyone is going to like the taste of things to come.
     The Employment Policies Institute recently published results from a survey and study entitled Paid Sick Leave in Seattle: Examining the Impact on the Service Industry. The Seattle paid sick leave mandate officially rolled out last September and has had some time to make an impression on the restaurant community and service industry at large in the Seattle area. The EPI survey found that more than one third of the respondents have executed on cost cutting/revenue raising measures in response to the mandate, and "roughly 56 percent said it would increase their cost of doing business in Seattle."
     Protests have been picking up steam in the Fast Food Industry as the debate over a $15 minimum wage has caused people to take to the streets in Seattle and other cities. Washington State already boasts the highest minimum wage of any state in the country, but part of the cause of this discussion may be the shift in the demographics of our local restaurant industry workforce. The Washington Restaurant Association reports that the percentage of teenagers in the restaurant workforce has dropped from near 20% in 1998 to an estimated 5% today, surrendering to an older, post-recession workforce. An older workforce generally has more liabilities and more obligations, requiring a higher income.
    Add in new regulations accompanying the Affordable Care Act coming this Oct. 1, and you have some blustery winds of change blowing through an industry already known for its low margins and long hours. More regulations to comply with and rising labor costs may mean an increase in prices for customers, but coupled with the decrease in the younger workforce, will more restaurant owners change the way they run their business?
     Tomorrow's successful restaurants could operate like today's successful professional services companies from an employee management perspective. With the smallest errors seriously depleting already thin margins, will an industry notorious for its turnover focus its attention on stronger HR and better employee management in an effort to reduce turnover, minimize unemployment claims, and decrease hiring and training costs? The money to afford these new regulations and rising labor costs has to come from somewhere. A highly trained, more financially stable, tenured workforce could supply the type of experience required to deliver high quality service - the type of service that could support an increase in customer pricing.

June Jobs Data and Thoughts on Current Small Business Challenges in WA State

Two new clients I worked with in June provide this month’s theme:

                  (1) A small construction company of 5 employees, marred by turnover, was trying to process payroll, deposit taxes, and pay garnishments themselves, struggling with the myriad of compliance challenges with doing so. The tasks ate up their time and frustrated their business, culminating in tax penalties and personal stress.

                  (2) A small flooring company looked to get mobile in their payroll technology to gain the ability to process payroll on the jobsite, and to accurately communicate pay information to employees, using a mobile device.

                   Echoed from last month’s job growth, June brought with it a significant increase in jobs across a number of sectors including the construction (21,000 new jobs according to the ADP NER) and restaurant (21,000+ new restaurant franchise jobs according to the ADP NFR) industries. The great thing about these industries is they often offer entry level employment opportunities alongside more tenured jobs, inducing more financially diverse employment opportunities for those in search. The challenging side about these industries, from a business owner perspective, is they tend to be more seasonal, carry a higher rate of employee turnover, and carry a higher risk  of employment in terms of compliance—i.e. garnishment payment processing, unemployment claims, etc…

                   The small businesses that support these industries are looking to not only manage compliance, but to provide quality communication to their employees in terms of their hours worked and pay, in an effort to minimize turnover. They are also trying to get more done in less time, opening a new wave of mobile payroll prospective clients interested in such services.

Data Overview:

Small businesses with 1-19 employees had a net jobs gain of 84,000 jobs nationally (ADP/NER)

Professional/Business Services Industry had a net gain of 40,000 jobs nationally (ADP/NER)

Restaurant Franchise Jobs grew by over 21,000 in June (ADP/NFR)

WA State had a gain of over 6,000 jobs (ADP/RER)

WA State Preliminary Unemployment Rate is 1.6% lower than at the same point last year, June 2012 (BLS)

WA State has added an estimated 67,000 jobs in the last year: June 2012—June 2013 (BLS)

What the May Jobs data means to Washington State Employers

Two new clients I worked with in May provide this month’s theme:

                 (1) An independent contractor for years, providing a professional service, this business owner decided to invest in a retail space and hire on her first employees. With no previous experience in managing employees, her biggest concern was compliance—how to report what information, and to which agency, in order to avoid fines and penalties.

                 (2) The owners of an expanding doctor’s office, knowing they deal with sensitive client information (HIPAA Regulations, etc...), were looking to reduce their exposure during the hiring process by performing background screening of candidates as well as establishing company wide policies for better employer to employee communication of industry compliance standards.

          I’m always interested when a new business tax deduction or tax holiday is proposed via government in an effort to spur business hiring. In the small sample of business owners I bring on each year (75-100), most will tell you it is not tax breaks they want as an incentive for hiring, but risk mitigation—lower the level of risk that comes with hiring on a new employee.

          As more SMBs embark on the journey of employment growth, options for compliance and risk management are becoming increasingly more sought out. And knowing as they do, business owners are concerned about their increased chances of state or federal audits as our governments struggle to find new sources of revenue to bridge their increasing budget gaps —and the tidal wave of this trend is coming...as 2014, the year of the Affordable Care Act, looms.

          With that being said, employment growth is happening, which is wonderful news—And here in the Greater Seattle Area, when we look at the local unemployment rate, we should feel particularly optimistic about our prospects to make of our future what we wish. Cheers.

Data Overview:

Small businesses with 1-19 employees had a net jobs gain of 37,000 jobs nationally (ADP/NER)

Professional/Business Services Industry had a net gain of 42,000 jobs nationally (ADP/NER)

Business Services had the 2nd largest jobs growth by industry in Franchise Employment (ADP/NFR)

WA State had a gain of over 3,000 jobs (ADP/RER)

WA State Preliminary Unemployment Rate dropped to 6.8% (BLS)

Seattle/Bellevue/Everett Preliminary Unemployment Rate dropped to 4.7% (BLS)

Payroll: Getting Started Guide to Washington State

Congratulations, you're ready to hire your first employee in Washington State!

Here's a short checklist guide of the items you'll need to get set up properly for your first payroll.

When doing payroll in Washington State we have 3 main tax agencies that cover payroll taxes. (Reminder: We have no State Income Tax...yet)

1. IRS - Federal Taxes
2. WA State Employment Securities - the office of Washington State Unemployment
3. WA State Labor and Industries - the agency covering Worker's Compensation Insurance

In order to File and Pay Federal Payroll Taxes, and there are a number of them, your company must have a Federal Employer Identification Number (FEIN or EIN for short). You can apply for an EIN online or complete and submit a hard copy SS-4 Form application. The online application gives you an identification number and receipt of completion instantaneously, and tends to be the preferred option.

The Department of Employment Securities requires an assigned identification number (called an ES Reference Number), as does the Department of Labor and Industries, in order to properly pay their state specific payroll taxes. To obtain both ID numbers, a Washington State Master Business Application must be filed indicating you are now hiring on employees - in doing so, both the Department of Employment Securities and the Department of Labor and Industries will issue identification numbers upon receiving the correctly completed Master Business Application, which can be completed online.

Once you have your three tax identification numbers you'll want to be sure your new employee(s) complete(s) their W4 Form so that you or your payroll company will be able to calculate that individual's payroll taxes accordingly.

Once you've gotten your Tax ID numbers and W4 forms, you can process payroll. There may be some other tax or compliance requirements based on your employee count and/or location of your business, so be sure to consult your CPA or business advisor. Also, there are a number of compliance items to tackle like New Hire Reporting and hopefully you've had your employee(s) complete their I9 Form for Homeland Security purposes.

If you're willing to take on the burden of payroll compliance on your own be sure to review IRS Publication 15 - the Employer's Tax Guide, as well as Employment Securities and Labor and Industries filing and depositing requirements.

If you feel better served having a professional service company take over payroll duties, feel free to contact me at Randy.Harris@adp.com and we can quickly explore if some of our small business payroll services options could ease your concerns. We process payroll and file & deposit payroll taxes for companies with as few as one employee in Seattle, Bellevue, and all corners of Washington State. Reach out for a discussion today.