Increasing state minimum wages to $15 per hour has become a polarizing topic recently. Headlines from top news publications indicate it would be either a doom or boom for small businesses.
The restaurant industry is famous for low-wage work because of its infamous short-sightedness and reliance on gratuity. Even 5-star, Michelin-rated spots fall victim to this description.
But, how should restaurants respond to these calls for increasing the minimum wage? Are there any benefits that business should consider? This article will discuss these questions.
Industry-wide shortsightedness has played a large part in stagnant wages
As Amanda Cohen of Eater New York writes, “This is a business that has never met a deep, systemic problem that it couldn’t answer with a poorly reasoned, short-term solution — the shallower the better.”
When the industry began to feel the effects of a slowing economy after the 2007 recession, big brands turned to promotions in order to draw in new customers. However, this created the perception that restaurants were offering cheaper products in order to maintain their profit margins.
Now that cost of living expenses are outpacing state and federal minimum wage increases, the industry is facing another reckoning. Will it continue to keep wages low and rely on America’s tip culture, or will it finally concede that it’s not doing enough to help its employees live above poverty.
American tip culture doesn’t align with increasing the minimum wage. But, that’s not necessarily a bad thing
The Federal Fair Labor Standards Act allows employers to use “tip credits” to pay their employees less than the minimum wage if those employees receive tips. This creates what’s known as a “minimum cash wage” which is oftentimes far below a state’s actual minimum wage. For example, servers in Georgia make $2.13 per hour because of tip credits.
Tip credits are one of the driving forces behind America’s tip culture, which recommends that patrons leave at least 20 percent of their bill’s total for their server. If the federal minimum wage, or a state’s minimum wage, were to increase to $15 per hour, this would drastically change how Americans perceive tips. But, that’s not necessarily a bad thing.
For one, tips reduce take-home wages for tipped employees. If the minimum wage were to increase, tipped employees would be paid more per check while also taking home some cash at the end of their shift. This would help offset increasing cost of living expenses in many cities.
Secondly, if an employee doesn’t earn enough tips to make at least minimum wage, employers are supposed to make up the difference on their checks. However, this may not always happen. If the minimum wage was increased, tipped employees would not have to worry about missing this extra income because of employer negligence.
Struggles with minimum wage increases exist, but that doesn’t mean they’re permanent
Restaurants in Seattle are already struggling with the city’s $15 per hour minimum wage. Some have resorted to charging a 10 percent service fee on top of state and local sales taxes in order to maintain their profit margins.
But, that doesn’t mean that there isn’t a way to fix on the horizon.
While some businesses are asking their customers to pay more, others are asking them to stop tipping. One example is Matt Dillon’s Upper Bar Ferd’nand which is a “no tip/no service charge house,” according to their menu. In other words, any gratuity left is completely up to the diner. Servers can instead focus on providing top-quality experiences while business owners don’t have to worry about passing along extra labor costs to their customers.
So how should business owners address talks of increased wages?
In my personal opinion, business owners should embrace an increased minimum wage for a couple of reasons.
First, employees who make a decent living wage tend to stay at their jobs longer than employees who struggle to make ends meet. Restaurant owners can use this to their advantage by leaning on their employees to create return customers rather than relying on marketing tricks or promotions. This can help build a family brand without sacrificing the perceived value of your food.
Second, increased wages are often a motivating factor in employee performance. Think about it for a second: why would an employee give you their best when they are receiving the minimum from you?
But, don’t just jump head-first into the increased minimum wage. Be sure to consult your accountant to find out just how it will affect your business before increasing your labor rates. There’s nothing worse than an employer who raises their wages only to shut the doors a few months later because they didn’t think it though. Stick by your employees and you will reap the rewards.