We love SF, but city small business rules are chasing us away

My son and I are considering buying a small tutoring business in San Francisco. It’s a good fit for our education-minded family. It serves a compelling and diverse set of kids who need a leg up in school. It works with San Francisco nonprofits to provide tutoring services to underprivileged students. It generates enough profit that my son might one day be able to afford to rent a one-bedroom apartment in San Francisco. It’s located in a city that we both love.

San Francisco does not love us back.

Of course, we knew that the business would be paying federal and state income tax, state and federal unemployment taxes, state payroll taxes, franchise taxes, Social Security and Medicare. We’re good, lifelong Democrats: We don’t complain about paying taxes.

Then we entered the city of San Francisco’s online Small Business Portal. Two head-spinning hours later, we had jotted down a formidable list of additional local regulations and taxes for which we would be responsible, including:

•Paying the gross receipts tax and payroll expense tax.

•Offering health care benefits as defined in the Healthcare Security Ordinance.

•As well as commuter benefits, as required under the Commuter Benefits Ordinance.

•Meeting requirements of the Formula Retail Employee Rights Ordinance.

•Ensuring the business entrance is accessible to people with disabilities under the Accessible Business Entrance Program.

I’m sure we missed some.

We read the ordinances, watched the webinars, read the slide decks. I tried to make sense of the suggested process for calculating San Francisco’s gross receipts and payroll expense taxes, but my Ivy League MBA failed me. We wondered how the many would-be San Francisco small business owners can even begin to make sense of this maze of regulation.

We learned that because our intended business relies on part-time tutors to deliver services, our more than 20 employees would catapult us into a “medium business” category and trigger our need to comply with the Healthcare Security Ordinance. The rest of the nation embraces the concept of “full-time equivalent” employees, as reflected in the Affordable Care Act. Not San Francisco.

An employee who works two hours per week counts as a full-on employee for purposes of health care ordinance compliance. We calculated that we will spend hundreds of dollars of employee time and resources tracking and administering what will amount to less than $800 in annual health care benefits for our eight-hour-per-week employee. This caution from the City of San Francisco Office of Labor Standards website did nothing to relieve our growing anxieties. “In any instance where the Administrative Guidance, or the Regulations, conflict with the Ordinance, the Ordinance itself governs and should be followed instead.”

We can live with the health care ordinance. We are, to repeat, good Democrats and believe that universal health care should be in our nation’s future.

What may finally force us out of the city is the fact that our small, family-run business would be classified as a “formula retail” business, a.k.a. “chain store,” because it is a franchise. We are confronted with a likely 25 percent rent increase when our assumed lease expires, because, well, it’s San Francisco. No problem, I reassured my son, we can relocate to a less expensive commercial neighborhood, if necessary. A call to the San Francisco Planning Department dashed that plan.

To locate in any of the few neighborhoods that cater to young families, we would need to go through the lengthy conditional-use review. It would be a financial disaster for us to attempt to secure a retail space by paying San Francisco rents during the many-month review process. There is no way that we could compete for retail space, given the burden of our “formula retail” status. We also would be required to comply with the “Formula Retail Employee Rights Ordinance,” a noble effort to protect big-box store employees. The unintended consequence of this ordinance is that we will need to shrink it to fewer than 20 employees to avoid an unwieldy scheduling and tracking process that would unnecessarily drag down productivity. This move would also get us out from under the health care ordinance.

And then there’s the building that would house our “medium-size” tutoring business. We have already established that compliance posters would be the cornerstone of our decor. However, we would also like to replace the yellowed, 25-year-old linoleum in the bathrooms with inexpensive, durable tile. Easy decision? Not so much. To replace linoleum with tile, we would need a building permit. If we do so, we trigger an Americans with Disabilities Act review, which could wipe out our profit for the year.

Redwood City … Pleasanton … San Jose: Our love could grow.