The debate over how a $15 federal minimum wage rate would materially affect restaurants isn’t going away. It might be considered inevitable by some, but the path forward is far from straight. Will it result in rampant automation? Robots? Perhaps higher menu prices or less workers? Would it cripple some restaurants to the point of closing? Or would it reduce turnover, improve employee quality, and fuel a healthier industry for years to come?
A 2019 Congressional Budget Office suggested getting to $15 an hour by 2025 would increase the pay of at least 17 million people, yet cost 1.3 million Americans their jobs. However, the last time Florida raised the figure (2005), it added 200,000 jobs and unemployment actually fell from 4.9 to 3.1 percent.
It’s safe to say there is no consensus, and no clear timeline. An amendment to prevent $15 minimum wage during the pandemic—something floated by President Joe Biden in stimulus talks—was brought forth just this past week by Republican Sen. Joni Ernst. Rates have steadily climbed state-by-state in recent years, although the federal number hasn’t risen since 2009.
READ MORE: As Biden Prepares to Take Office, the Minimum Wage Battle Returns
Many brands have already begun plotting course and finding ways to offset wage pressure. Yet the broader impact still holds ample mystery, especially if tipped minimum wage is phased out as well.
Harri, a workforce management platform, released a 2021 Hospitality Wage Inflation and Disruption report. It polled hospitality leaders representing roughly 8,000 locations and 185,000 employees across the U.S.
Here were some findings:
A full 82 percent of operators said they were in opposition to increasing minimum wage to $15 per hour, with 89 percent saying an increase of that magnitude would disrupt business practices and P&L.
Seventy-seven percent said they were in opposition to legislation that would eliminate the “tip credit,” and 74 percent believe doing so would carry negative consequences for employees. The tip credit is a long-running debate. But where it promises significant kickback is in how it affects minimum wage calculations. Tip credits allow restaurants to credit some of employees’ tips toward their obligation to pay minimum wage. Tip credit is not deducted from pay, and generally shows as a line item on a pay stub.
What minimum wage often ends up looking like for a tipped employee, such as a server, is this: Tipped minimum wage plus tip credit equals standard minimum wage. The Fair Labor Standards Act allows restaurants to pay employees less than the standard minimum wage as long as the employee earns enough tips to make up the difference. The federal minimum wage for tipped employees is $2.13 per hour compared to $7.25 for other employees.
That difference (money between cash paid and the standard minimum wage) is the tip credit. Here’s an in-depth breakdown. Also, how a decision to dump the “80/20 rule” could disrupt everything.
Developments aside for now, nearly 80 percent of restaurant owners in Harri’s study simply don’t want it removed.
So what happens if a $15 per hour federal minimum wage does go into effect?
- Eighty-five percent of operators said they would raise menu prices.
- Sixty-nine percent said they’d reduce employee hours.
- Sixty-two percent would eliminate jobs.
- Twenty-seven percent would close additional locations.
Restaurants have a few plans to adapt business processes to counteract wage pressure.
- Sixty-one percent would deploy new technologies.
- Sixty-four percent would eliminate ancillary positions.
- Sixteen percent said they’d activate a commissary to augment back-of-the-house activities.
Operators also noted they’d deploy new technologies, such as:
- A predictive scheduling platform: 52 percent
- Labor-related compliance monitoring systems: 46 percent
- Biometrically controlled time and attendance system: 29 percent
- A more efficient hiring platform: 49 percent
In response to increasing wage pressures, restaurants said they’re considering a deeper analysis into labor cost by discovering new forms of efficiency in the following:
- Improving your annual turnover rates: 68 percent
- Informing scheduling with historical sales data and other data: 52 percent
- Removing the risk of wage theft and creep: 37 percent
- Analyzing cross-location performance in labor and sales data: 38 percent
- Implementing compliance-driven technology and practices: 41 percent
Vaccine questions
The topic of COVID-19 vaccines is swirling for restaurants. Should you mandate them? Can you even do that? Incentivize them with PTO (like McDonald’s, Shake Shack, and others), or just let it play out?
Harri surveyed 4,259 people who have either worked, or are currently working, in the hospitality industry in the last 12 months.
It found 15 percent of respondents currently have the ability receive the vaccine. Yet strikingly, as a personal choice, 29 percent said they would not take it, even if they could.
Of those not in favor of doing so, here were the reasons:
- I am worried about the side effects: 57 percent
- I want to wait and see if the vaccine is effective: 46 percent
- I do not believe in the process of receiving vaccinations: 22 percent
- I’m applicable to a medical or religious exemption: 10 percent
If required by an employer, 77 percent said they’d take the vaccine in order to maintain employment or as a prerequisite to return to work. Twenty-three percent said “no.”
Twenty-nine percent of respondents said they live with someone considered at high-risk for COVID-19.
Thirty-six percent are currently receiving government aid, benefits, or stimulus relief as a result of their current employment status.
Ninety percent said their employer has not proactively discuss a COVID-19 vaccination process.
Twenty-six percent said they’d consider finding work in another occupation where they would not be required to receive a COVID-19 vaccine.
Fifty-seven percent are currently employed outside of the hospitality industry thanks to the pandemic shakeup.
Where would restaurant workers migrate to?
- Retail: 50 percent
- Automotive: 12 percent
- Healthcare: 34 percent
- Grocery or C-store: 38 percent
- Warehousing and logistics: 24 percent
- Gig economy jobs: 47 percent
- Construction: 15 percent
And where are restaurants already losing employees to of late? (employees who are now working outside of hospitality)
- Retail: 35 percent
- Grocery or C-store: 28 percent
- Healthcare: 12 percent
- Warehousing and logistics: 9 percent
- Gig economy jobs: 16 percent
