Everyone's paycheck is about to take a hit, and it's not the boss's fault. But some business owners say it's a tough talk to have.
The rate of workers' payroll taxes, which fund Social Security, has been 4.2 percent for the past two years. As of Jan. 1, it's back to 6.2 percent, on the first $113,700 in wages.
That forced Mike Brey, who owns four Hobby Works shops near Washington, D.C., to notify his store managers about the upcoming change during a conference call Monday. He called the experience uncomfortable. "These are the people who can least afford it," Brey said.
Brey said he can't raise compensation to ease the pain. Enduring the recession meant cutting his own salary, firing workers, taking on half a million dollars in debt and raiding his own 401(k).
"Any business that survived the recession did so by digging a big hole," Brey said. "We can't dig any deeper."
Workers earning the national average salary of $41,000 will receive $32 less on every biweekly paycheck. The higher the salary (up to $113,700), the bigger the bite, but business owners say their lower wage employees will feel it most.
Deborah Koenigsberger, who owns the Noir et Blanc fashion store in Manhattan, has yet to have the talk with her only part-time employee, a college student.
"It's going to hurt me to tell her this. She can't afford a decrease," Koenigsberger said. What unnerves her is the feeling that she's lost control as a business owner watching out for her employees.
Keval Mehta, CEO of In-R-Food, a smartphone app developer in Durham, N.C., worried that the tax increase will threaten morale. "They don't get paid enough for what they do," Mehta said.
All that made it even more difficult to warn them during the holidays about the oncoming pay cut. Mehta promised them that he'd make up the lost pay if the company's finances improve next year.
"Currently, they're working on passion. But that can only drive you so much," Mehta said. "I don't like that I don't have control over this. It wasn't a decision I made. But as a CEO, you take responsibility for everything. You're automatically at fault, because you're the captain of the ship."
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