Episode 48: I Want Clean Hands

This week, Paul, Jay, and Dana give quick PPP updates—and then dive into a discussion of what a $15 federal minimum wage would mean for smaller businesses. Will it lift people out of poverty? Will it put businesses out of business? Will it hurt entry-level employees? “I'm listening to you, Jay,” Dana tells us, “and I'm thinking about the coffee shop owners I know who have to close.” To which Jay responds, “They say they have to close, but did they try raising their prices 5 percent first?” We also tackle a listener-submitted question about the best way to avoid unemployment claims, which can require forceful management. “There's no way around it,” Paul tells us. “You gotta be hard at some moments, as a boss. You just have to be.”

Episode 48: I Want Clean Hands

Guests:

Paul Downs is founder of Paul Downs Cabinetmakers.

Dana White is founder and CEO of Paralee Boyd hair salons.

Jay Goltz is founder and CEO of Artists Frame Service and Jayson Home.

Producer:

Jess Thoubboron is founder of Blank Word Productions.

Episode Highlights:

Jay Goltz: “I’m a retail pariah. ‘Oh, you’re a retailer?’ They can’t get away from me fast enough.”

Jay Goltz: “Wait, wait. They say they have to close, but did they try raising their prices 5 percent first?”

Paul Downs: “There’s no way around it. You gotta be hard at some moments, as a boss. You just have to be, and you have to do hard things.”

Dana White: “I’m listening to you, Jay, and I’m thinking about the coffee shop owners I know who have to close.”

Full Episode Transcript:

Loren Feldman:
Welcome Dana, Paul, and Jay. I hope you guys are doing well. Let’s start. I’d like to do a quick PPP update. How about you, Paul? Last time you were here, you told us that you were getting your application in, and you were very much hoping for a quick turnaround. How’d that go?

Paul Downs:
It went as advertised. Very quick turnaround. I had to have one conversation with a guy from the bank, and he said, “You’re good,” and the money appeared the next day. Very simple.

Loren Feldman:
Nice. And you were hoping to get it quickly because your phone wasn’t ringing. Has that changed at all? Have sales picked up at all?

Paul Downs:
We did scrape it out in the last week of January and hit our target for January: $358,000. We just made a nice sale today. So far, the sales are coming in. The phone calls are still way behind where they were in 2019, but I don’t know what to do about that. It’s possible that the people who aren’t calling are the ones who never would have bought anyway. It’s a 25-percent drop in the number of calls, but maybe we don’t care about some of that. We’ll see.

Loren Feldman:
Dana, how about you? I think last week, you told us that you had sent your application off to the bank. Any progress?

Dana White:
None.

Loren Feldman:
What’s going on?

Dana White:
I don’t know. I go on twice a day to their little portal, check the application status, and it still says “under review.” I’m with PNC, so…

Loren Feldman:
Is that the bank that helped you on the first round?

Dana White:
No, PNC was a little slow to shoot, and everybody was nervous the first round, like, “Oh, I want to get it in because they may run out of money.” Goldman Sachs provided an opportunity for Goldman Sachs alumni of the 10,000 Small Businesses program to go through them to apply. So I did, and I received it. Now that everything seems a little bit more ordered, I went ahead and did my application through my bank. Last Tuesday I did it, and so nothing as of today.

Loren Feldman:
Are you at all concerned about money running out this time?

Dana White:
Yes and no. I’m not asking for a lot, and they put restrictions on who can apply. I’m getting nervous now because I’d like my application to get submitted to the SBA, but I’m not as nervous as I was the first time. I know more now and I think the businesses and banks are working smarter this time. But we’ll see, you never know.

Paul Downs:
For what it’s worth, my bank is PNC, too. But I had gotten the first round of PPP through them and they gave me the impression that that helped get the second one through quicker. Now, the person who called me was a senior vice president in charge of agricultural operations in Tennessee. I don’t know why. I said, “Why are you calling me?” And he’s like, “Well, it’s just all hands on deck. We get given a list of names, and we call them.” I wouldn’t necessarily despair that they haven’t contacted you. I think that, similar to the spring, this is actually kind of tricky for banks to process a huge number of applications at one time.

Dana White:
Okay. Another friend of mine who went the same route as I did, his PNC approval came back very quickly. He filed, I think this Tuesday, and it’s going to closing tomorrow.

Loren Feldman:
Jay, last time we talked, you said that you didn’t think you were going to apply this time because you didn’t think you needed it. Is that still where you are?

Jay Goltz:
No, that’s not where I’m at. It turns out that I am qualified, I do need it, and the bank—to their credit—has been very on top of it. He’s the one who called us and said, “Your numbers all qualify. You should do it.” And I did it, and it worked.

Loren Feldman:
You’ve talked to us many times about your efforts to get a new loan that would give you a mortgage on a building that has no mortgage on it. And every time you’ve told us about it, you’ve concluded with some optimism that you think maybe this week it’s going to come through.

Jay Goltz:
Yeah.

Loren Feldman:
Are you feeling less confident about that? It sounds like you are.

Jay Goltz:
No, I’ve got one bank left who wants to do the deal.

Loren Feldman:
So I assume this is part of the reason you decided to go ahead and apply for the PPP?

Jay Goltz:
Absolutely.

Loren Feldman:
Let me ask you about that, because I suspect there are a lot of businesses in the same situation that you are, meaning you had a rough time in the spring when the pandemic hit, when you had to shut down. But business came back and when we spoke about this last time, you said you might not need it, because business had come back and you weren’t sure this was intended for you. How are you feeling about that now?

Jay Goltz:
A) it was intended for me, because my numbers were off. I fit right into the thing.

Loren Feldman:
You definitely qualify, right.

Jay Goltz:
And B) here’s the part that I wasn’t thinking about. I’ve had a credit line for the last 30 years. I no longer have a credit line at the bank.

Loren Feldman:
Why is that?

Jay Goltz:
Because I’m a retail pariah, that’s why. Because, “Oh, you’re a retailer?” They can’t get away from me fast enough.

Loren Feldman:
They took away your credit line?

Jay Goltz:
Yeah. I don’t know if you’d call it “took away” or “didn’t renew it.”

Loren Feldman:
Had you been using the credit line?

Jay Goltz:
Yes, absolutely. I use it every single year. I lose a good amount of money in January, February, March, April. Business is slower, and then I make it up. I’m in a retail cycle. And I use the credit line as it’s supposed to be: I borrow from it, and then I pay it back at the end of the year. It’s been the same way for 30 years. Now all of a sudden… well, part of it is my bank got bought by the bigger bank. It’s a different deal. The bank I used to be with made their living lending money to small businesses. That was their niche. Now, the bigger bank bought them out, and they’ve got other niches. They’ve got banks on every corner. They’ve got big corporate business.

Loren Feldman:
I want to ask you about another aspect of the PPP, which is this: In the legislation that renewed it and gave us round two, there was also a change to the Employee Retention Tax Credit. William went off about this last week on the show, talking about how it’s very complicated, requires a lot of math and hours of analysis. But in the end, he found it was going to have, in his words, a “pretty incredible” impact for him. Have any of you looked at the Employee Retention Tax Credit? Do you qualify? And does it look incredible to you?

Paul Downs:
I did. I took a brief glance at it, and it looked like we qualified because we were shut down by state action on March 18th of last year and didn’t open up until April 28th. But during that time, the employees who I had who could work from home, continued to work from home, and I continued to pay them. So that, as far as I could tell, was payroll that qualified under the terms of this. I didn’t work out the math of how much it was exactly, but let’s just say it’s 10,000 bucks, for the sake of argument. The difficulty was in trying to figure out how to actually get it.

I read through the Treasury Department webpage about it, and they refer to a particular form that you could fill out. But there was no mechanism by which you submitted the form. It wasn’t clear who you sent it to or how you did it. It just started to look like, “Oh my god, here we go down some other rabbit hole.” And that particular morning, I didn’t feel like entering that. So, I set it aside, and that’s where I’m at, at the moment.

Ten thousand dollars is nothing to sneeze at, and maybe it’s $20,000, maybe it’s $5,000. It’s nothing to sneeze at, but it’s not a game-changer for me right now. So after the encouragement received in the Morning Report and from William, I’m going to go back and take another look at it, but it did appear to be extremely complicated to actually get it somehow.

Loren Feldman:
Interesting. Jay or Dana, did either of you?

Jay Goltz:
I didn’t even know about it until the Morning Report came up with it. I have a full-time CFO—MBA, CFO, been here for 20-some years—he didn’t know about it. He looked into it. He’s on a webinar as we speak finding out more about it, but he said there’s controversy as to exactly how it works. It’s the same story again: The rules are unclear. He’s trying to navigate it, but I feel bad for someone who doesn’t—literally, that’s all he does. He’s a full-time CFO. He’s working on it. He thinks that we qualify. And he thinks it’ll be worth the trouble, but he’s on a webinar right now to try—”try” being the operative word—to try to figure out exactly how it works.

Loren Feldman:
Dana, have you given it any thought?

Dana White:
I have, and I’m meeting with my bookkeeper-slash-accountant just to see if it’s even worth it, or if I qualify. I think our biggest thing for Paralee Boyd is forgiveness. We’re trying to look more into forgiveness than whatever tax credits come after that.

Loren Feldman:
I want to ask you guys about another topic that’s in the news right now. There’s a lot of talk once again about the never-ending debate about the $15 minimum wage. Every story you read suggests it’s either going to lift millions of people out of poverty or destroy thousands of businesses, or maybe both. Are any of you concerned about this?

Paul Downs:
Not me. Well, not for my primary business, because the lowest wage we’re paying right now is $18.50 plus benefits, and it just doesn’t make any difference. However, I’m on the board of a non-profit, which operates in the food service space. It would have more of an effect there. Just to do some quick math, what’s the difference between a $10-an-hour person and a $15-an-hour person? If I get it right in my head, it’s about 10,000 bucks a year. So however many employees you have times plus-10,000, I think that is a powerful incentive to look for ways to increase productivity, as opposed to just continue the same model.

Your question, “Will it raise people out of poverty?” Yes, it will—the ones who are worth it. And will it drive automation? Absolutely. There is a difference between the least productive employees and better employees, and a lot of times, cheaper employees are just more trouble than they’re worth. I could see it certainly driving the evisceration of that entry level job and sort of raising the bar of what is the basic requirement to enter the workforce.

Jay Goltz:
Let me put some math to that, because you just gave a good example of where I think there’s a misconception. Let’s talk about the one you just talked about: food service. So what do they sell? Are they selling hamburgers?

Paul Downs:
It’s a bakery.

Jay Goltz:
Okay, a bakery, fair enough. How much do they pay in labor? I’m going to guess: 30 percent?

Paul Downs:
Yeah, it’s somewhere between 30 and 50.

Jay Goltz:
Fair enough. Let’s say 40. Now, if you raise it from 10 to 15, that’s a 50 percent increase, but everybody’s not going to get the 50 percent increase because many employees aren’t making the 10. It’s going to compress the difference between the experienced person and the new one. But everybody’s not going to be going up 50 percent. So can we agree maybe the labor costs are going to go up 25 percent?

Paul Downs:
I wouldn’t think about it that way, Jay. I think that the actual dollar amounts are a little more revealing.

Jay Goltz:
This is math. Let me just finish them. My point is—

Paul Downs:
You can write math to do one thing. You can write it to do another thing. In our case, we’ve got budgets of around a quarter million for this enterprise. So if I’ve got four employees, and I’m adding an extra 10,000 bucks, that is a pretty significant bump in our costs.

Jay Goltz:
As I said, this isn’t an opinion. This is math. So my question is: Here’s the math. If your sales are $800,000 a year, it would require raising prices by 5 percent in order to cover that. The argument is: If everybody has to do it, then perhaps everyone instead of paying $10 for that cake, they’re going to pay $10.50 now. I don’t know that that’s going to drive people out of business.

I think it’s a false argument. I think the argument is, “If this goes through, I’m going to have to raise my prices. And if I raise my prices, people won’t pay that price.” I don’t think you know that until you try it. And if everybody needs to raise the cake from $10 to $10.50, I’m not sure it’s gonna ruin the business. I think the statistics of everywhere that’s done it has proven out that, in fact, most people don’t go broke over it, unless they don’t pass it along.

Dana White:
Wow.

Jay Goltz:
It’s math.

Paul Downs:
I don’t disagree with that analysis, but—

Dana White:
It has to scale though. I’m listening to you, Jay, and I’m thinking about the coffee shop owners I know who have to close.

Jay Goltz:
Wait, wait. They say they have to close, but did they try raising their prices 5 percent first?

Dana White:
But they don’t have the volume. They’ve done the raising prices scale model. How much do we need to raise our prices just to make ends meet? How much do we have to raise our prices to come just below that and not pay ourselves or bring more family on? I think, yeah, if you have an $800,000 a year business, sure. What they’re finding is, it’s going to happen that we’re going to have one, maybe two, employees. And this has to become a family-run business where the younger part of the family isn’t getting a salary, because they’re living at home with mom and dad. Right?

Jay Goltz:
Except that’s illogical. It doesn’t matter what the size of the business is. It still comes down to: If it’s a smaller business, there are less dollars you’re paying out. It’s still simple math. So if they’re charging $3 for the cup of coffee, and they raised it to $3.50, that should more than cover the extra expense.

Dana White:
But not if they’re only selling three or four cups a day.

Jay Goltz:
If they’re only selling three or four cups a day, they don’t have any employees. It’s a bad argument. It’s math.

Paul Downs:
All right, Jay. You’ve proven that it’s going to be no problem for everybody in the economy, and I hope you’re right. But there are a couple of other things—

Jay Goltz:
No, I haven’t proven anything. I’ve proven that people who say they will go out of business because of it—unless they’ve gone ahead and raised their prices and then have gone out of business—it’s all a theory. If they’re that small, it’s not going to add up that much to the business. The miracle of adding 10 or 20 or 30 cents to the product would cover the costs of the increase.

Dana White:
I disagree completely. I don’t think the raising of prices will solve for small businesses that don’t have the volume, that don’t have the family. They have to grow their business so they can bring on a manager. The long-term of this will hurt my business. It may not hurt my business in the first year, but a lot of them don’t want to be mega coffee shops. They want to be small, local coffee shops. They don’t want to have to work 96 to 100 hours.

Jay Goltz:
You’re conflating all these things into a simple minimum wage raise. They have a business problem then, if they can’t figure out how to hire a manager. This has nothing to do with the minimum wage.

Dana White:
They can’t afford to hire a manager, though.

Jay Goltz:
They can’t afford to hire a manager because they’re not making enough money because they don’t have a successful business. This has nothing to do with minimum wage. Everything gets thrown at the minimum wage like—

Dana White:
But you’re defining “successful” differently than they are. They want to stay small.

Jay Goltz:
No, I’m saying “math.” If you have to raise a minimum wage employee up, it’s simple math. I think they did a thing with Target and Walmart and found out if they raised their prices 1 percent, they could pay everybody more money. It depends on what your margins are, what your labor costs are.

Dana White:
That’s Walmart, though.

Jay Goltz:
I got it, but it’s still math. My point is, this isn’t an opinion. It’s math. If you raise the minimum wage, it all turns into a mathematical amount of money that’s a percentage of your gross sales. And in many cases, a minimal increase in your pricing—meaning three, four, or five percent—will make up for the minimum wage raise, and the rest of this is a whole other issue.

Loren Feldman:
I want to give Paul a chance to respond to what Jay said, but first, Dana: Are you concerned about the impact of this on your business?

Dana White:
Not anymore. I was.

Loren Feldman:
Why not? What changed?

Dana White:
Because my operations manager and I worked it out. While Biden was on television, she texted me and said, “You know, we’re gonna have to work this out.” And I said, “Okay,” and so we did.

Loren Feldman:
How’d you work it out? What did you do?

Dana White:
We no longer are hiring shampoo assistants unless it’s on the busier days.

Paul Downs:
There you go.

Dana White:
All of our stylists will do both, but they get a higher commission. I’m fortunate that, in my industry, I can pay hourly and do commission and pay them the higher of the two. It just so happens that when I pay them the higher the two, it’s of the commission. So if they don’t hit a certain number of heads, then they get the hourly. But the hourly works out to be less than the commission, because if they see three or four heads an hour at $12 a head, well, that’s how much they’re making per hour.

But again, it’s the volume. The math works because we have the volume. The second we go down to our slow season and we’re not marketing, or we go back to the numbers that we used to have before we grew, yeah, people paying one or two or three people in a shift $15 an hour to sit because we don’t have the volume, and then I raise my prices? Okay, I raise my prices, and then we still don’t have the volume. Then I have to start letting people go.

Jay Goltz:
Well, that’s a problem if you’re paying people sitting around doing nothing, and the business model—

Dana White:
By nothing, I mean hair.

Jay Goltz:
I got it. But I’m just saying—and Paul’s totally right—this is going to make it hard for a younger person or for someone with no skills. There’s no question. I’m not arguing that at all. He’s correct. If you’re going to pay $15 an hour, you might as well get a grown-up and not hire some kid who you’re going to have to put more time into. You’re 100 percent right on that, and I would also say there’s a huge problem with this, in that telling Jay in Chicago to pay $15 an hour—which I have to anyway because it’s Chicago—and telling some guy in Biloxi, Mississippi to pay $15 an hour, that’s not right.

I mean, the cost of living is dramatically different. It’s also not right that I pay health insurance. I pay vacations. Me paying $15 is very different than someone paying $15 who only hires part-time people and doesn’t give any benefits: no health insurance, no vacation time, blah, blah, blah. It’s not right. Trust me, there’s no question.

Dana White:
That’s what I’m saying. I’m with you there.

Loren Feldman:
Part of the problem there is that if you leave it to Mississippi, it’ll never get raised. But Paul, have you finished your critique of Jay’s critique.

Paul Downs:
I mean, Jay sort of slipped it in as if it were an asterisk or a footnote, but those are pretty critical points he just raised. And Dana just said it herself: She’s going to cut out some of the lower skilled positions in her company, because basically, that job isn’t worth $15 an hour.

Loren Feldman:
So Paul, is the concern that you’re raising the loss of jobs, or the threat to the business?

Paul Downs:
Here’s my concern. And I will say that I am actually in favor of minimum wages, in the absence of something like universal basic income. If you don’t have minimum wage, it’s a race to the bottom, and the people who suffer in those kinds of games are the ones who are least equipped to get themselves out of those situations. It sets up exploitation. Setting a $15 minimum wage so that someone can make a decent living from working 40 hours a week, I’ve got nothing against that. I’m all for it. But there will be knock-on effects, and the fact that it’s been tried in a bunch of high-cost urban areas, and there wasn’t a huge difference because—as Jay correctly pointed out—you could do a relatively modest price raise and absorb the extra costs. Okay, roll it out to every town and city in America, and you’re going to see a lot of operations that formerly were viable slip over the edge.

I think Dana is right that it is a cost. You’re going to see the dynamics within companies—something which is utterly invisible to economists—play out. So you give the worst worker a raise to 15 bucks an hour, and your former mid-level and good workers were making 16 an hour. Now what do you do? The price of labor will go up across the board.

Loren Feldman:
Does that apply to you, Paul? You said before, when you talked about your own business, you’re not paying anybody at the minimum wage, but will there be pressure on the wages for your employees?

Paul Downs:
Within Paul Downs Cabinetmakers, I don’t think it’ll have any effect at all, because we’re already a high-skilled, high-pay operation, and that’s not the world we live in. With the bakery I run, it’s going to raise a couple of people. Let’s say it’s gonna cost us 40 grand, but it’s the new hires who are going to be more difficult. Because when you hire someone new, you have to start paying them from the minute they show up, and you also have to train them, and you have to manage them. Those things are expensive. Particularly a $10-an-hour employee requires more management than an $18-an-hour employee. There are going to be a lot of businesses that don’t have systems set up to manage employees at that cost level, and so you’re increasing the cost of the labor and of the management.

Jay Goltz:
What you describe, I am that company. I do have people who are making $17 an hour, and I am going to have to make some adjustments. What this is doing is, it’s bringing down the difference between the new employee and the one who’s been doing it for 10 years. There might have been a $5 spread per hour. Now it’s going to be three or two. It has affected that, and I’m by no means suggesting this is a perfect model, that they should make it $15 everywhere. Not at all. I think it’s clumsily done and needs to be done more surgically. I think it should probably be left to the states because I don’t think you can—

Loren Feldman:
Even if the states don’t do anything?

Paul Downs:
Yeah, we have that now. States compete just like businesses compete.

Jay Goltz:
Then how about this? How about taking the state where their minimum wage is seven, what about making them do 10? I mean, what’s with the—they’re gonna go from seven to 15?

Loren Feldman:
It’s not seven to 15. The legislation hasn’t been written, as far as I know, but I think what they’re talking about is phasing this in over four years.

Jay Goltz:
Okay, whatever they do, treating Illinois the same as they treat whatever the lowest income state in the country is, is not right. It’s just not right. There needs to be some wiggle room there. Do you realize why all these big stores now have part-time people? They figured out how to get out of paying health insurance, which is why many studies have been made—how many people who work at Walmart are getting government subsidies? It’s that they figured out how to get around it.

Loren Feldman:
I don’t think we’re going to settle this today. Let’s move on to something else.

Jay Goltz:
Wait, just to be clear. My guess is, if we all sat down and laid this all out, we’d all be on the same page. The only point I’m trying to make is, before someone screams, “Oh my God, if the minimum wage goes up, I’m gonna go out of business,” I’d like to hear their math. Look, Dana figured out how to make it work. I believe there are many other companies that can figure out how to make it work—many.

Loren Feldman:
Let’s go to a question that was submitted by a listener. It comes from a woman who’s submitted a previous question that we’ve dealt with—Liz Picarazzi of Citibin—who sent me a whole bunch of really good questions. She wants to know how you guys handle bogus lawsuits and unemployment claims.

Jay Goltz:
Those are two completely separate things.

Dana White:
Those are two different topics.

Jay Goltz:
Pick one, Loren. Just pick one of them.

Loren Feldman:
Unemployment claims.

Jay Goltz:
Want to hear my four keys? My unemployment rate 20 years ago got up to the maximum—maybe 30 years ago—up to 7.2 percent of the first X amount of income.

Loren Feldman:
I think we have to define what that is. When people hear “unemployment rate,” they think you’re talking about the national unemployment rate.

Jay Goltz:
All right, here: Today in Illinois, you pay a percentage, somewhere between—I don’t have it in front of me—1 percent or half a percent, up to 7.2 percent of the first—whatever it is—$14,000 of income. I’m close. That’s Illinois only, which means that if you get up to 7.2 percent, you’re going to pay $1,000 a year per employee for unemployment. Whereas if you’re at the bottom, you’re going to pay next to nothing. It’s going to be hundreds of dollars. Okay, so I got my rate from 7.2 down to .6 or something over the years. How did I do that, you ask? Good question! First of all…

Loren Feldman:
We don’t even need to be here, Jay.

Jay Goltz:
Well, you want the answer or not, Loren? Number one, I’m much more careful who I hire. We’re much more careful doing the interview process, the reference checking, the whole thing. Number two, at 30 days, you own their unemployment. Generally speaking, if someone gets un-hired within 30 days, you’re not responsible for their unemployment. They could have worked at U.S. Steel over 40 years; you hire them, they’re there for 40 days, you own their entire unemployment. It’s unbelievable. So number two is, at 28 days, we sit down and think, “Is this person working out or not?” And answers like, “Well, they’re really trying hard,” or, “Well, we’ve had worse, right?”—we don’t take chances with it now. Almost always, you can usually tell by 28 days if this was a good hire. If not, you tell them it’s a probationary period, we un-hire them. It doesn’t happen very often, but that certainly helped.

Number three, we manage properly. We make people productive and work hard, and if they’re not working, and if there’s a problem, we sit down and we have candid conversations: “We’ve told you three times about this. We’re concerned you’re not the right person for this job. I don’t know if you knew what you were getting into.” And then sometimes they figure it out on their own and they leave on their own, which is better for them and better for us. They look for another job, they leave.

Lastly, we document. We have good policies: Coming in on time, it’s all laid out, we treat everyone the same. And if we have to contest it, we usually win. Because of this methodology, I very seldom have an unemployment claim now because the first three things take care of it. And when we do have an unemployment claim, we usually win because it’s a slam dunk. We warned them, we told them, they violated the policy. And as a result, I’m telling you, fact: my unemployment rate is down to the minimum. I’ve had one claim in three years that got through: one.

Loren Feldman:
And how much money does that save you a year?

Jay Goltz:
I gave you the math. I have 125 employees. If it were at its max, it would cost me about $1,000 a year each. That would be $125,000 in unemployment insurance I’d be paying if I were still at the max.

Loren Feldman:
And you think you’re somewhere in the neighborhood of…?

Jay Goltz:
Oh, it can’t be more than $10,000.

Loren Feldman:
Interesting.

Jay Goltz:
This is kind of the irony to it: If someone’s got a super low unemployment rate, like the minimum, it means one of two things. Either they’ve gotten to be good managers, they’re careful when they hire, and blah, blah, blah, or they never fire anybody because they’re terrible managers. Pick one. If they’re terrible managers, they’re probably gonna be out of business eventually. So the unemployment rate is a grade of: How is your management? Because if you have a high unemployment rate, you’re doing something wrong. No one knows better than I did, because I was doing everything wrong. I was a revolving door.

Loren Feldman:
Dana, what’s your experience been with bogus unemployment claims?

Jay Goltz:
Well, they’re not actually bogus. They’re unemployment claims.

Loren Feldman:
Well, some of them are bogus, right?

Dana White:
Some of them are angry. Some of them are emotional. And some of them are, “I don’t know what to do, so this is what I’m going to do.” So we just document. We document thoroughly. Sometimes with video, sometimes with audio, always written out documentation. That’s how we’ve been able to keep our unemployment low. And then we train. We’ve hired better, meaning the attitude. Everybody coming through the door has a cosmetology license, but they may not have the attitude to work at Paralee Boyd. We know that the people who come in Paralee Boyd, who want to make Paralee Boyd what they think it should be, versus what it is—we know very quickly that these aren’t the people who are going to work out. And then, like Jay, we let them go within a certain amount of time. Not a lot. We don’t get a lot of that.

Paul Downs:
I find that my rates go up after I lay people off. And there have been times when I laid people off because I just needed to, and then the claims come in. I think that the critical thing to understand, right out the gate, is that the states have different rules. You really need to understand: What are the rules for your state?

So I know Liz is in New York. I have a hard time imagining that New York has an employer-friendly system. But knowing things like: What are the days of the grace period that you can get rid of? What are the criteria for deciding for or against you? I’ve only had one contested claim, and it turned out in the process of that, I had a lot of conversations with the adjudicator. You can’t fire someone because they can’t do the job in Pennsylvania and expect to avoid the unemployment claim.

Jay Goltz:
Yes, I think that’s everywhere, just so everyone knows.

Paul Downs:
Yes, do all the warning. Do all the documentation. That’s all good. But really understand what the state sees unemployment for. And then the other thing is that I think that there’s as much impact from the general economy as anything you do yourself. The unemployment claim is going to be big if the person lingers on unemployment. So if you get rid of somebody in a time when unemployment is high, you’re going to end up paying out a lot in claims.

I just went back and looked at all my rates from 2009 to this year, and they were high in 2010, ‘11, ‘12, because I had to lay off 22 people. I ended up paying out those amounts over the next few years, and then now it’s down to 1.8 percent. It’s more to do with not having laid anybody off. And then, when I got rid of a couple of low performers in the last few years, they immediately went out and got another job. They just weren’t making claims.

There’s a bigger context than just what you do. I mean, yes, absolutely, do what you can to understand the system and avoid it. But a big part of your ongoing costs is going to be determined by things that are out of your control,

Jay Goltz:
Which, to your point, those weren’t bogus claims. That’s what unemployment is for. You had to lay people off. That’s what unemployment is for. It worked.

Paul Downs:
Right, but you end up paying for it.

Jay Goltz:
Yes, but I’m saying, that’s what unemployment is for.

Loren Feldman:
I wonder if this is what Liz was referring to. Aren’t there times when you just want to fight whether the former employee should collect unemployment or not? Is that the “bogus”?

Jay Goltz:
No, either, it’s legitimate—

Paul Downs:
No, no, I disagree. There are definitely times. I had an employee who I fired because he wasn’t showing up for work, and I did all the stuff documenting it, writing it down. We had the final meeting where his transgressions were to be reviewed, and I filmed it. And what happened was, I sat down, handed him a document, “Here’s your problem. Here’s the policy violation.” Started reading it to him, and he threw it in my face and jumped up, basically, “Screw you. I’m out of here.”

But he was smart. He said, “You can fire me if you want, but I’m not listening to this garbage,” and then he just left. And so then I did go and fire him, and then, of course, he claimed unemployment. I sent this movie in to the adjudicator, and I said, “Check this out. Like, how in the world is this not a quit?” And he said, “Well, it’s not a quit. He didn’t say he was quitting. He said, ‘Fire me.’ And you did. So it’s a fire.” But the guy took pity on me. He told me exactly how to play it so the claim would be denied, and it was. It basically was the guy had demonstrated that he couldn’t be managed, and that instead of me saying that he had quit, I should just say, “He couldn’t be managed.”

Jay Goltz:
That is a critical piece in this.

Paul Downs:
It wasn’t a question of competence, or whether he could do his job or not. And it wasn’t a question of who quit or who got fired. It was he had demonstrated very clearly that he could not be managed, and that was a legitimate reason for me to get rid of him.

Jay Goltz:
You hit on the key piece, which is, there are maybe half a dozen reasons why someone’s not eligible for unemployment. One of them is, they didn’t follow the agreed-upon rules. One is attendance. There are reasons.

Paul Downs:
Jay, before you say that in a blanket way, we should emphasize that these rules differ from state to state.

Jay Goltz:
Yes, yes.

Paul Downs:
What you say about Illinois and what I say about Pennsylvania may be really different in Alabama—or New York, for that matter.

Jay Goltz:
I’m 100 percent with you on this. You need to know the rules. And if you follow the rules, and you have to fire someone for those rules, you will win unemployment. But, at least in Illinois, you can’t say, “Oh, they weren’t doing a good job.” That’s not a reason they don’t get unemployment.

Loren Feldman:
I want to follow up on one aspect of what Paul just said: Do we all think it’s a good idea to videotape a session where you are letting an employee go?

Dana White:
I think it’s a bad idea because there shouldn’t be enough discourse to videotape. Termination should be quick and you should always have somebody there with you. Some of the times, we’ve even had a quick sign off, a quick two- or three-sentence paragraph saying, “Yes, I’m being terminated on this day,” and done, but videotaping it?

Jay Goltz:
I haven’t found it necessary, and I find it to be just too adversarial. Personally—this is just my own personal thing—I don’t like the idea of we’re turning this into a court case right off. We’re going to videotape. I’m not comfortable with that. I have found that, by documenting it, it’s worked fine.

Loren Feldman:
Paul, what do you think? Have you continued to do that?

Paul Downs:
I haven’t, but I find the threat of it to be extremely useful. I did that one, and it actually was really helpful to me in the situation where I was trying to get the adjudicator to see what happened. I mean, the one thing about video is there’s no argument about what happened. But since then, what I’ve done is prepare documentation and have a witness. And what I tell the person I’m about to fire or discipline when they come in is, “Hey, I’m gonna do you a favor. I’m not gonna turn on a camera here.” What it does is, it lets them know it could be even worse.

They’re about to have probably the worst moment, or one of the worst moments of their adult lives, and I’m going to tell them that there is a further level of humiliation that I could subject them to, and I’m not going to do it. That has worked out well for me since then, in that I’ve discharged six or eight people for cause, and I haven’t had any unemployment claims from that because I try to always leave them with a sense that, “It’s not working out, but I don’t bear you any ill will.”

Dana White:
So by telling them, “Hey, I’m gonna do you a favor by not recording you right now,” I see the bully and I see the buddy, right? Let me help you help yourself.

Paul Downs:
There’s no way around it. You gotta be hard at some moments, as a boss. You just have to be, and you have to do hard things. They are humiliating, and they are dreadful for the person you’re doing them to, and that’s just part of the job. But there are ways to do it that make it worse or ways to do it that make it better. I’m not a hard person, but I will do a hard thing. If I feel like that employee’s continued employment is threatening the health of the rest of the team, that’s what makes me act. But I try to always pull back a little bit as the punch lands and try to make it as good as it could be.

Jay Goltz:
Well, let me give you my version of that. Clearly, you have to fire some people, and clearly, they’re usually not going to be happy about it. My approach has been: I want to have clean hands, which means they’ve been talked to about it before, they were given an opportunity to fix whatever the problem was, they’re given an opportunity to go look for another job, because you said, “Listen, I’m starting to get concerned you’re the wrong person for this job.” They’ve had all that opportunity.

When it comes the time that they have to get fired, I want clean hands. And if they go—which has happened—“I can’t believe you’re doing this!” I’ll say, “I can’t believe you’re surprised. We just had a conversation two weeks ago when I told you exactly where we’re at. And listen, Bob”—if their name is Bob—”you don’t have to agree with me. Maybe you’re right. All I know is, this isn’t working out for us here. Today is your last day. I wish you well.”

Paul Downs:
I think that one of the critical things is not the meeting that involves the firing, but the one before that. I bring out the full documentation. It’s all the same things you would do to fire someone with an escape valve at the end, so there is the written part, there is the witness, there is the policy violation. The person has to sign an agreement that they’ve been in the meeting, they understood what happened. But I always say, “I’ve laid out what I want to change in this document we’re both reviewing. I want you to stop doing X and I want you to start doing Y. And if you do that, we’ll forget about this. It’ll be in your record, but I’m not gonna hold it against you.” It’s a real warning.

Jay Goltz:
You have just described having clean hands. You have just described what I was talking about.

Paul Downs:
Good employees change direction. Bad ones continue down the road, and then you fire them. But they’re not surprised.

Loren Feldman:
I just want to make clear, you guys are all performing at a very high level. I am never letting any of you go—except for right now, because we’re out of time. My thanks to Paul Downs, Jay Goltz, and Dana White.