VSAG on Watch: Restaurant Industry Minimum Wage-DC Vote & Beyond

hour-minimum-wageIt was announced that Washington, D.C. is poised to join other cities, such as San Francisco and Seattle, in increasing minimum pay wages to $15.

In a unanimous City Council vote, set to be ratified next month, the wheels are in motion for legislature to gradually raise the District of Columbia’s minimum wage to $15 by 2020. Along with this increase in the minimum wage, is an increase in the “tipped minimum wage” from the current $2.77 per hour to $5.50 per hour. This is where the devil is in the details, unknown outcomes, and potential for unintended consequences.

Tipped workers are already protected by law to ensure they earn at or above the minimum wage with a combination of their base wage plus their tips. Thus, this increase is a difficult challenge for restaurants, while providing a pay increase to the restaurant workers who may be the least in need of a pay raise. While it helps the tipped server and bartenders, it reduces monies that the restaurant would have to offer pay increases to the kitchen and non-tipped staff, which is where the pay disparity is the greatest (i.e. between tipped and non-tipped).

While opportunities for all to earn a good living wage should be the goal of any society, the politics that embroil the minimum wage and tipped minimum wage issue often seem to lose sight of who really needs the help, and the actual consequences of specific changes. For example, we don’t hear much mention of the fact that governments will earn more in payroll taxes if wages go up or that insurance companies will earn more in worker’s compensation insurance premiums (since they are based on payroll). We also don’t hear much about job creation, the bankers who loan restaurants the money to open, the landlords who need restaurants to pay their rent, and the investors who make the restaurants possible to exist in the first place. What will be the effect on these stakeholders when restaurants have less profit?

There is a balancing act to this overall recipe, and when people line up solely on one side of the issue or the other it does everyone, and society as a whole, a disservice. While unions can be fantastic for employees, they also generate revenues as a percentage of wages. Governments want ever-higher tax revenue. Investors want maximum profits. Any stakeholder in this debate has a position, they can be easy to criticize or indict when their position or motive is viewed in a vacuum. But setting aside the debate, as restaurant owners or operators, it is important to stay informed of potential changes in the local law, and see how it can affect your business, employees, guests, and investors.

In order to keep our international and domestic teams, clients, and prospective clients abreast of this ongoing issue, our news blog team has kept watch and reported on this issue for the last several years. In fact, we referenced it in our 2014 annual wrap-up of Tectonic Shifts & Challenges Facing Restaurant Owners & Operators. And the recent DC vote outcome is no different.

As this vote will undoubtedly have a huge impact on DC-area restaurants and affect roughly 114,000 restaurant workers in the district with an estimated $329 million in additional wages, the movement is a win for employees if we view it solely through that narrow lens. The concern of course is: what if it is good for some employees and not others, and what if that short-term gain for some employees turns into long-term pain for those same employees if the impact on the business is to great to withstand? We can imagine fast food operators like Wendy’s will accelerate their current plans to eliminate and replace all cashiering positions with touchpads – computers don’t need to be paid a minimum wage. We can imagine fast-casual operators following suit; and then where are the entry-level jobs that allow so many in our industry to climb the ladder into management?

The thought that a living wage, and the opportunity to earn a living wage, should eliminate the current levels of minimum wage seems to fail to take into account that minimum wage jobs should be intended as rungs on a ladder, not a permanent career position. This balance can be a challenge, but it should be discussed, with innovative ways to allow for appropriate wages correlating to experience, job-value, and real life. Does a part-time high school student living with their parents need to earn $15 or $20 per hour? Can the local ice cream shop stay in business with that model? At the same time, it is clear that at $10 per hour, it is essentially impossible to be a parent and provide for oneself and a family. Innovation and collaboration can lead to new ideas and solutions, but again this takes mature, fair communication between all sides instead of heated rhetoric from the hard left or the hard right.

What does this wage increase mean to you as a DC-area restaurant operator? The staggered timing works in your favor to review, plan, and adjust your business and labor models going forward to incorporate a higher wage. Examining budgets are just the first fiscal step. In addition, review and determine policy for all major aspects of your operation, such as: your view on tipping vs. no tipped minimum wage, cutting food costs through waste management and how food costs ultimately determine menu pricing, labor scheduling best practices, and the like.

If your restaurant business is outside that of the District and has not recently increased wages, keep an eye on and know your jurisdiction’s wage regulations, so you too can customize your business model and be prepared for a possible increase. The local politicians sometimes prioritize parity with the local regions; this may or may hold true, but it certainly seems like it should in a multi-state business area like the DMV.

*photo credit: REUTERS/Lucas Jackson

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