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Minimum Wage Increases – What Does It Mean for the Restaurant Industry?

Posted by Brady Thomason, NetSuite Solution Manager, Restaurant & Hospitality

When Boston’s iconic Durgin-Park restaurant, which had been in business for almost 200 years, shuttered its doors in January earlier this year, much of the news coverage surrounding the reasons why pointed to problems it had accommodating the state’s minimum wage increase and still turning a profit.

“We [own] several venues across the country that are facing a minimum wage increase,” the owners were quoted as saying in the Boston Globe. “As part of that, we’re facing an increase in liability, property and health insurance.”

As of January 1, Massachusetts increased its minimum wage to $12 an hour, with a plan to increase it to $15 an hour by 2023. For tipped employees, the current rate of $4.35 an hour will go up in steps to $6.75 an hour by 2023, with the law requiring that employees receive at least the $12 minimum wage now and eventually, the $15 rate, when actual tips and wages are combined. If they don’t, the employer must pay the difference, according to the state law.

“There will be a tremendous impact to operators over the next five years and beyond,” a recent newsletter of the Massachusetts Restaurant Association reads.

And, while Massachusetts may be a bit of an outlier, it’s far from alone and the restaurant industry has already stood up and taken notice. California, Illinois, Massachusetts, New Jersey and New York all have approved a $15 minimum wage, as well as the District of Columbia. In New Jersey, Ohio, South Dakota, Vermont, Alaska, Florida, Minnesota and Montana, minimum wage increased as a result of automatic adjustments for inflation, according to US News and World Report.

Voters approved minimum wage increases in Arizona, Arkansas, Colorado, Maine, Missouri and Washington as well, but in many states the legislature has taken up the issue. State legislatures in California, Delaware, Massachusetts, Michigan, New York and Rhode Island have all passed increases, according to coverage in US News and World Report. In Nevada, a bill is currently before the state legislature to increase the minimum wage over the next five years to $12 an hour for workers not offered health insurance and $11 an hour for those who are, according to local news coverage.

Minimum wage increases are a complex issue for restaurateurs striving to balance the care of their employees, ensure compliance with state laws and still maintain profitability. The “Fight for $15” that spurred much of the movement for a higher minimum wage actually started in the restaurant industry, with 200 fast food workers striking in 2012. But at the same time, surveys have consistently shown that a majority of front of the house employees often don’t support minimum wage mandates for fear it will jeopardize tips that can be much more sizable. For restaurants, the effect of the increase on their bottom line is clear -- some 77 percent of restaurant owners surveyed in the The State of Rising Minimum Wage for Restaurants research report said they have shrinking profits due to minimum wage increases, according to coverage on TouchBistro.

What’s more, how restaurants could be required to calculate minimum wage for tipped workers could also bring significant changes. In Massachusetts, for instance, currently, under the “Grand Bargain” legislation, restaurants will be required to ensure a minimum wage is earned for all hours worked per shift, where in the past, this calculation needed to be completed at the end of each pay period, according the Massachusetts Restaurant Association.

For instance, the newsletter reads, “a restaurant server works one 5-hour shift on Tuesday and one 5-hour shift on Saturday during the same pay week. On Tuesday, the employee earns $21.75 in service rate wages + $20.00 in tips for a total earned of $41.75. The new law requires that the employee receive at least $60.00 for the shift (5 hours x $12.00 minimum wage rate). The employer would be required to add $18.25 to the employee’s next pay check to cover the differential for this shift.”

“Operators are going to have to work with their payroll companies to make sure systems are in place to ensure minimum is earned for each shift. Otherwise, there would be risk of being liable for nonpayment of wages for every occasion this happens,” the newsletter from the Massachusetts Restaurant Association reads.

The bottom line for restaurant owners is that keeping up with the changes will be crucial – as will finding ways to accommodate the costs without hurting workers or damaging relationships with customers. The best restaurant owners will leverage automation and data to their advantage to find innovative ways to continue to care for workers, delight their customers, and serve as leaders in their industry.

But there are some smart ways restaurants can control their labor costs. Watch the video below to learn some of the best labor hacks and visit Brainyard for more industry-specific benchmarking data.