With the increasing minimum wage, we are finding ourselves in the ever-changing landscape of needing to protect the future of our bottom line. And while the exact language of the minimum wage law is tied up in legislation we need to react proactively to ensure our industry adapts to this rising tide.
This has yet to make into any of the past legislature, so until then this is just a concept with no legal footing. Total compensation would include taxable tips, commissions and wages in calculating a tipped employee’s minimum wage. It would allow employers to allocate limited labor dollars to non-tipped employees from the wages of their tipped employees. This improves income equality between highly compensated front-of-house staff and non-tipped back-of-house staff. Thus increasing wages in the back-of-house and ensuring that tipped workers are able to maintain their hourly minimum wage with tips. Only workers that are highly compensated with tips would qualify for the total compensation model. Employers that do not opt into this model would be required to pay all employees the local minimum wage without the benefit of any tip credit. Currently the CRA and others are fighting to get this on the final piece of legislation. However if this measure does not make it into the language of the final bill we will need to explore some of these other options to help supplement our labor costs.
Putting tipping on the chopping block and replacing it with a fixed service charge is one option. While a tip is optional, a service charge is not. And when it’s automatically added to the check it is being collected by the house as revenue. Tipped workers, who currently make more per hour, may see a decrease in income with a service charge model and customer service may suffer. After all tips are To Insure Prompt Service and if we are paying a mandatory service charge and don’t have prompt service then what? It’s a slippery slope and one that operators will need to address with their staff if they are transitioning into this model. It will be on them to help educate the consumer about this shift and that a service charge is no longer about just the table service, it’s about all of the services from the front desk to the prep kitchen. And shouldn’t it be?
Raising Menu Prices?
And then there is always the option to raise prices. This is all about perception and if you are going to raise prices by twenty percent why not just add a twenty percent service charge instead? A regular guest who orders the same menu item every week is accustomed to leaving twenty percent, but raise the price by twenty percent and they might not be a regular guest anymore. Perception can be reality and price sensitivity in our industry is high. Consumer educations about the cost of doing business aside, if you are not perceived as a good value, expect your business to decline. We’ve seen a version of this already roll out in New York; Union Hospitality raised their prices by 20 – 25% but they are going one step further and setting aside a portion of revenue as a profit share for their employees. This encourages service, selling and guest retention.
The economic effects of raising the minimum wage are controversial. Adjusting the minimum wage may affect levels of employment, price of goods and services, economic growth, income inequality and poverty. We may see a decrease in guest services as operators switch over to a quick casual model that requires less staffing. Or tasting menus to help account for less food waste while focusing on cuisine and minimizing labor. And we are already seeing some operators increasing employee wages and adopting some of these strategies in anticipation of the coming law. With so much still unknown none of these are the definitive solution and every market is unique. But it’s important to have a plan in place so that when the time comes there are no surprises or last-minute gut reactions when making a decision that will impact all aspects of your business. Early adopters are being smart and testing the waters to find the model that will work best for them, their staff and their guests.
It’s About Time…
Since 1984, the purchasing power of the federal minimum wage has decreased. The federal poverty level for a family of four with a single wage earner is $23,850.00. Yet the current $10.00 an hour worker makes an average $20,800.00 annually. When the minimum wage gets to $15.00 an hour that same worker would average $31,200.00 annually. Frankly this is long overdue and will go a long way to improving income equality by creating a model where the back-of-house and front-of-house are no longer separated by wage. As well as making the service industry a viable career options for many workers.