With less than a month until Minnesota’s minimum wage increases for the third straight year, businesses in Austin and Albert Lea are deciding how to handle the new change in wage.

“It’s a tough decision for everyone,” said Randy Kehr, executive director of the Albert Lea-Freeborn County Chamber of Commerce.

Starting Aug. 1, minimum wage will increase from $9 to $9.50 per hour. This is the final set increase from a bill by the Minnesota State Legislature passed in spring of 2014. The hourly wage first moved from $6.15 to $8 in 2014 and $8 to $9 last year. On Jan. 1, 2018, the minimum wage is set to increase annually to match inflation.

Although large employers with an annual gross sales of $500,000 or more will increase to $9.50, there are certain exceptions. For small businesses with annual gross sales less than $500,000, the minimum wage will be $7.75 per hour. This also applies to employees under 21 during the first 90 days of their training and employees younger than 18.

Before 2014, the state’s minimum wage hadn’t increased since 2005.

Democratic backers hailed the bill as an overdue raise for more than 350,000 people making the least.

They said people in that situation tend to spend what they make quickly, helping cycle money into the local economy.

Republican lawmakers relayed concerns from business groups that the wage is rising too much too fast. They warned it would be a crushing blow on grocery stores and restaurants, causing them to raise prices or pare back employee rolls.

Austin Area Chamber of Commerce Executive Director Sandy Forstner said the annual increases continue to be costly for businesses, and employees and consumers are likely to feel the effects too.

“Those costs will be passed onto consumers as much as can be,” Forstner said.

Decreased hours, increased prices and the number of jobs available are a variety of ways Forstner sees businesses adapting.

“Businesses will adjust to this in a variety of ways,” he said.

Kehr agreed the increases force businesses to make choices: Do they take a smaller amount of profit or pass it on to the consumer?

“This kind of change can impact the consumer whether they think it does or not,” Kehr said.

An impact to budgets

In Albert Lea, most large businesses already pay minimum wage, according to Kehr. He believes the impact will be larger for retailers still struggling to adapt to previous minimum wage increases.

He added it can also be problematic for employees who worked their way up to a $9.50 wage through raises. With the new increase, other employees will now match their wages, but employers may not be able to give those already earning $9.50 a raise too.

“It gets to be a bit of a problem from that standpoint,” Kehr said. “Every company handles it differently.”

The Austin YMCA has adjusted several things to adapt to the new wages. For example, membership costs have increased the past two years. But Executive Director Tedd Maxfield said the Y won’t have to increase membership rates this time around.

“We intend to leave our membership rates,” he said.

The Y has also tried to cut back on utilities by being more energy efficient and replacing lights with LED bulbs.

One reason the transition is easier this year is because minimum wage is only increasing by 50 cents, rather than a dollar. Because the Y hires many entry-level and first-time workers, it had to make more significant changes in previous years.

“We’ve looked carefully at expenses and tried to find every opportunity we could to pay higher wages,” Maxfield said.

The city has faced similar issues in Austin Park and Recreation. The increase may affect the budgets for summer programming and staffing for those programs.

“One has to offset the other,” Park and Rec Director Kim Underwood said.

The fees to participate in summer programs, as well as pool admission costs, might have to increase as a result. While increasing fees is not ideal, it is necessary in order to keep providing summer opportunities for children.

“We have to cover our programs,” Underwood said. “We really don’t want to cut programming.”

Taking it to the state level

The state Legislature could eventually take a look at minimum wage again in coming years, especially the indexed increases. State Sen. Dan Sparks, DFL-Austin, was one of the few Democrats to vote against the bill in 2014, as he argued he thought it went a bit too far with the automatic increases.

“I think that we really have to take a look at it,” Sparks said.

For the most part, Sparks thinks larger business have been good with the change, but he’s heard from many local small businesses leaders stating they’re not fans of the automatic increases.

Sparks said there’s often a difference between minimum wages and livable wages that people overlook, as minimum wages are often aimed at giving young people and teens their first jobs. But he fears some businesses may have to reduce hours or cut positions to make up for the increases, so the bill may be hurting the people it intends to help.

Sparks noted communities like Austin and Albert Lea also have to compete with Iowa, which still has a lower minimum wage than Minnesota.

Gene Dornink, a Hayfield Republican challenging Sparks in District 27, believes that while the intentions behind increasing minimum wage are good, it ultimately hurts the state.

“It ends up costing jobs, not producing them,” he said.

Dornink is also concerned about the potential increased prices of goods and services as a result. In his opinion, he thinks small business owners should have the right to negotiate their employees’ salaries.

“I don’t think the government should be setting wages,” he said.

If elected, Dornink would like to consider the effects of raising minimum wage before taking action.

“I want to be careful and count the costs,” he said. “Moving slower is better than faster.”

—Jason Schoonover contributed to this report.