As new laws take effect in Minnesota, small businesses say costs will sting

Some say they might need to cut back on hiring, others say they might need to cut services as a new minimum wage, health insurance mandates, and unemployment and gas tax increases go into effect Wednesday.

The Minnesota Star Tribune
January 1, 2025 at 1:03PM
Abundance Properties foreman Miguel Duran, from right, works with Alvaro Diaz and Adrian Rodriquez to replace the roof on an apartment building owned by Project for Pride in Living in Minneapolis in September. (Leila Navidi)

Minneapolis house renovation firm Abundance Properties planned to hire new workers in 2025, but that may not happen. Keaveny Drug in Winsted may have to cut back or end deliveries.

After a year of inflation and uncertain economic conditions, new Minnesota laws add another layer of expenses that are making some businesses embrace decisions that favor stability over growth, the owners said.

“If anything, [the new laws] definitely make us kind of reassess, to make sure it’s financially feasible to have that new employee on payroll,” said Jordan Crockett, co-owner of Abundance Properties. “We have to really make sure it makes sense.”

A higher minimum wage, new health insurance mandates, higher unemployment insurance costs and an inflation-adjusted gas tax all took effect Jan. 1 in Minnesota.

Business experts say the laws will hit small businesses the most, especially outstate. And they worry about the collective punch of so many changes at once.

“The cumulative impact of these measures, from increased taxes to stricter regulations, poses significant challenges for Minnesota employers and employees,” said Laura Bordelon, senior vice president of advocacy at the Minnesota Chamber of Commerce.

The higher unemployment tax stings, “but we’ll just smile and pay it. It’s just an extra expense for us without any benefit,” said Deb Keaveny, owner of Keaveny Drug pharmacy. She noted that some of her 14 employees worked at Keaveny Drug in Winsted for 30 years.

The higher gas tax and other costs come at a tough time for independent pharmacies. Hundreds have closed in the last five years as they struggle to compete with large pharmacy chains and with pharmacy benefit management firms that set the co-payments for patients and simultaneously set the prescription reimbursement rates for pharmacists. The latter rates often fall below their operating costs, pharmacists complain.

Adding in new laws means “I get to absorb even more cost as a business owner because I have no way to pass that on to the customers,” Keaveny said. “It makes 2025 a very big year for us to try to get legislation through that saves the [small] independent pharmacy and provides open access for patients to get their prescriptions where they want to get it filled.”

Abundance Properties generated about $1.3 million in revenue in 2024, after winning contracts to repair dozens of residential properties in low-income neighborhoods. It has 50 workers and subcontractors. The company’s four owners envision having “growth and scale” to address its mission of serving community, Crockett said.

But to get there, he said, “We have to get really good at offense.” New costs will likely impede the ability to say yes to new jobs.

The Minnesota Legislature in its last session adopted an inflation-adjusted gas tax, which means businesses and lay commuters alike saw their gas taxes jump at the pump by 3.3 cents per gallon on Wednesday. The gas tax, which would have been higher without a mandatory cap, will help pay for highway and road construction and other transportation projects across the state.

At the same time, large and small Minnesota companies will start paying a minimum wage of $11.13 an hour as part of a multiyear phase-in. Large companies previously had a minimum of $10.85 an hour, while small firms (those with less than $500,000 in sales) had a minimum of $8.85 an hour. The wage differential between large and small firms disappears in 2025.

Even so, the state minimum wage is considerably less than that of companies in Minneapolis and St. Paul. The minimum wage in Minneapolis is $15.97 an hour as of Wednesday.

In St. Paul, the minimum wage for small firms jumps to $13.25 an hour for micro companies and $15 an hour for small firms. As of Wednesday, larger St. Paul employers must pay a minimum wage of $15.97 an hour.

Also as of Wednesday, employers in the state must meet new salary transparency requirements in job postings if they have at least 30 workers.

They also must follow 11 new health insurance rules. Chamber officials contend the changes could boost workplace premiums by as much as 15%.

Those changes are on top of a new unemployment insurance tax-rate increase from 0.1% to 0.4% and a new special assessment as well.

Adam Duininck, CEO of the Minneapolis Downtown Council, said the changes come as businesses downtown are still struggling with slow return-to-work trends.

David Fhima, whose family employs 100 workers at five restaurant and catering businesses around the Twin Cities, including Fhima’s inside the City Center in downtown Minneapolis, said he normally advocates for strong wages and improved worker conditions.

But the rush of new legislation has him worried about absorbing all the new costs. It hit him this week that the new minimum wages will affect 60% of his workers. He estimates he will also pay 40% more in workers’ health insurance costs. He will also need to re-evaluate restaurant service fees under new transparency laws.

He might have to trim hours if he can’t find more catering work or find other efficiencies that don’t affect food quality or service. His profit margins are already razor thin.

“I struggle with this,” Fhima said. “I wish the politicians had really thought about who this will impact. We are not 3M.”

about the writer

about the writer

Dee DePass

Reporter

Dee DePass is an award-winning business reporter covering Minnesota small businesses for the Minnesota Star Tribune. She previously covered commercial real estate, manufacturing, the economy, workplace issues and banking.

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Some say they might need to cut back on hiring, others say they might need to cut services as a new minimum wage, health insurance mandates, and unemployment and gas tax increases go into effect Wednesday.