And then the holidays were over… Happy New Year from
Chefsheet.
In this newsletter we will discuss the current changes in
the minimum wage as well as the forces that are helping to bring about these
changes. Most restaurateurs understand that increasing menu prices cannot
simply pay for increased labor costs. As restaurant prices go up, people choose
to order less expensive items, order less in general or just eat out less. For
many, dining out is a luxury; it is not something a consumer must spend money on
at any price.
The dark portion of the graph is the minimum wage in dollars. The lighter portion of the graph is the minimum wage in spending ability.
As your labor costs increase, know that Chefsheet was
designed to help you reduce your cost of goods and increase your bottom line. With Chefsheet, you can see which of your menu
items are the most and least profitable and how much you should be charging for
them. Track your vendor prices and keep your vendors accountable for what they
are charging you. Take comprehensive,
clean, monthly or weekly inventories to know your true costs as they are
happening. For help with any of this or any other Chefsheet features, contact support
to schedule a demo or training.
With the start of 2016 many states and some cities will see
an increase in minimum wage. Almost
everyone who has a job in the United States must be paid at least the federal
minimum wage of $7.25 per hour. Without discussing tip credits, the only people
who can legally make less than the minimum wage are business owners, those who
are self-employed, those covered by a union contract and/or people who are
interning and receiving college credit for the work they are performing. If you
own your own restaurant or bar, you are free to make less than the minimum
wage.
Twenty-nine states have passed laws increasing the minimum
wage above the federal minimum wage. A county or city may set up its own
minimum wage provided it is equal to or greater than the state minimum wage. The
federal minimum wage was last increased in 2009. Many state and local minimum
wage laws have automatic annual increases. These increases may be scheduled in
advance or may be indexed to inflation. Inflation indexes are generally set to
the Consumer Price Index or CPI. The CPI tracks the prices of items such as
food, energy and clothing in a geographical area. Indexed minimum wages will
generally increase annually by the same amount as the CPI for the area
increased in the previous year. Most indexed minimum wages can only go up or
remain flat. This means that during an extreme recession or depression, when
price growth is negative, the minimum wage can not go down.
A tip credit is a means of calculating a tipped employees
tip income as part of the income needed to meet the minimum hourly wage. Federal law says that tipped employees must
also be paid $2.13 per hour. Many states have two minimums, one for tipped employees
and another for non-tipped employees.
Seven states do not allow tips to be considered in minimum wage. In a
state with no tip credit, a waiter making $40 per hour in tips will still be
paid the state minimum wage, whatever it may be. For the purpose of taxing
income all states and the federal government combine tips and hourly pay. Both
the employees and the employers pay payroll taxes based on the combined
earnings. All benefits such was workers compensation, disability and
unemployment are also based on the total amount of tips and hourly income.
Since 1938 there have been different times when the minimum
wage has been increased both federally and at the state level. Over the past
couple of years there has been a great deal of energy around increasing the
minimum wage with Seattle, San Francisco, Los Angeles, New York and many
smaller cities. San Francisco first divorced its minimum wage from the
California minimum wage with an increase in 2004. The increases over the past
few years largely began in Seattle Washington.
In New York, Seattle, San Francisco, Los Angeles and many other
cities and states, the primary group midwifing these minimum wage increase is
The Service Employees International Union or SEIU. SEUI represents just below two million workers
in fields ranging from health care to restaurants and hotels. SEIU, with partnership from other unions and
community groups, funded the campaigns to raise the minimum wage in pretty much
every city and state that has seen a recent increase. SEIU is a funder of the ‘Fight
for Fifteen’ group and spent about $10 Million to organize employee walkouts at
New York City fast food restaurants.
Members of SEIU are very unlikely to be affected by the
minimum wage increases regardless of which industry they work in. Unionized
restaurant workers are mostly found in hotels, convention centers and large
venues. Most union restaurant workers already make more than the new minimum
wages. Further, many union contracts are exempt from elements of US labor laws
which means that a union worker could be paid less than the minimum wage in
some cases.
Why are SEIU and other labor unions so interested in
increasing the minimum wage? First, a rising sea lifts all boats. If non-union
workers are paid more it follows that unions will be able to negotiate better
contracts for their members. Also, for a long time, unionized restaurants have
been at a disadvantage to independent, non-union restaurants. A unionized hotel
bar needs to charge more than the independent bar on the corner as the hotel
bar has much higher labor and benefit costs. For SEIU’s part, they state that
their members believe in bettering the working conditions of others, regardless
of if they are in a union.
A few things to know and consider:
Any wage increase is only to be paid from the date it went
into effect. If your payroll does not start on the 1st of January,
make sure you are calculating your minimum wage employees pay based on the
effective rate before an increase multiplied the hours before the increase plus
the effective rate after the increase multiplied the hours worked after the
increase. Minimum wage employees may have two pay rates on a single check for
the pay period that covers the New Year.
Is there another way? The tips paid to waiters may represent
an amount of about 18% of your restaurants sales. Currently all of this money
is going to just the tipped employees. Some restaurants in high minimum wage
markets have already begun switching to a ‘service charge model’ where the
guests are asked to or are required to pay a service charge so the cooks and
servers are all paid higher wages. The challenges with a service charge model
may be attracting front of house talent and committing to a higher rate all for
your employees all the time.
Automation and outsourcing – The restaurant business is a
pretty analogue business, but there may be ways to accomplish daily tasks more
efficiently. There are answering
services, services that can take reservations and orders online, bookkeeping
services that process your books off shore and more. Every restaurant is
different but there are ways to downsize labor if necessary.
What to expect in the future – Local and state increases in
minimum wage in cities such as San Francisco, Seattle, Los Angeles, New York
and other places where these increases have passed are popular with the voters
and the public. Many large cities have become very expensive places in which to
live. Politicians and voters see people struggling with higher rents, higher
home prices and generally higher costs of living and wish to do something,
perhaps anything, to help. Options such as increasing the minimum wage are
popular as they cost the government very little, do not require tax increases
or money to be transferred from other government programs, etc. Following a
successful minimum wage increase in San Francisco, SEIU supported other
initiatives such as paid sick leave, fixed scheduling to avoid last minute
changes to a workers schedule, employer sponsored health care and other legal
mandates that offer new benefits to employees.
While higher minimum wage may help many Americans, it will
affect the efficiency and bottom line of restaurants everywhere. Are you ready?
See how Chefsheet can help you organize, plan and save in
2016!
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