How will restaurants contend with rising minimum wages?
- About 20 states are set to increase their minimum wage come Jan. 1, 2019, including Arkansas and Missouri, whose voters approved increases earlier this month. Additionally, Washington, D.C. and Oregon will raise their minimum wages in July, and Delaware will raise its minimum wage in October. According to Nation’s Restaurant News, a record number of voters in Arkansas and Missouri turned out in favor of a minimum wage raises.
- Despite the gradual increase in wages in cities and states throughout the country, the federal minimum wage — $7.25 — continues to be the standard in 21 states. That wage went into effect in 2009.
- Tip credits may be affected in some of these states and localities, such as Washington, D.C., where voters approved increasing the tipped minimum wage that was later overturned by city council.
Other than Missouri and Arkansas, restaurant operators in the states that will boost their minimum wage in the new year have had time to prepare for how those additional labor costs could affect their profit and loss. Washington state’s voters, for example, approved its increase in 2016.
Raising the minimum wage has been a major theme since about 2012, when the Fight for $15 movement was born. Last year, 18 states increased their minimum wages to welcome the new year. Just a short time ago, $15 seemed near impossible for the thin-margined restaurant industry, but it has since become a reality in some California and New York locations, while Seattle pushes for $16.
Nearly 30% of restaurant costs come from labor, so any minimum wage increase can have a significant impact on restaurants. But high turnover can have an even bigger impact, not just from a cost perspective but also from a consistency and reputational perspective. According to the Center for Hospitality Research at Cornell University, turnover costs the average full-service restaurant operator about $146,600 annually. That includes factors such as training, paperwork, uniforms and business knowledge and performance.
Though the minimum wage movement has made significant progress since 2012, tipped employees haven’t been a big part of the narrative, and subminimum rates remain solidly in place in most markets. Washington, D.C.'s Initiative 77 took a stab at eliminating subminimum wage for tipped workers and it was approved by voters in June. But in October, it was overturned by city council and, instead, employers will have to gradually increase their tipped wages. In July, those wages go up to $4.45 an hour, while in July 2020, the rate will increase to $5. This outcome could have big implications on the national discussion about tipped wages, since Washington, D.C. is the first major market to consider such a measure.
What is certain now is that above-federal-minimum wages are not just becoming the norm, they’re becoming an employee expectation. And, in the midst of the tightest job market in nearly 50 years and the fastest quitting rate in 17 years, higher wages have even arguably become a necessity.
- Nation’s Restaurant News Minimum wage set to rise in more than 20 states
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