Will they be asked to take a pay cut?
As states like Georgia and Texas phase back into dine-in service, it resurfaces one of the biggest pain points of the historic stimulus bill. Given capacity limit restrictions so far (25 percent in Texas, 10 customers per square feet in Georgia), it’s safe to assume restaurants won’t need full staffs to operate out of the gate. Yet at what point does that start to ramp up? Can you plan for it? And how does it all factor into PPP loan conversations, where forgiveness is dependent mainly on two measures for restaurants—whether or not you can rehire staff to previous COVID-19 or higher levels by late June, or whether or not you kept them employed throughout the pandemic. In either case, restaurants need to show they spent 75 percent of the loan on labor costs for it to be converted into a grant—a fact that has left a lot of operators mining the playbook for answers.
How do you manage to spend three-quarters of the loan paying employees you don’t have positions for?
This has been an especially pronounced dilemma for full-service concepts and fast casuals that don’t welcome the majority of their sales through off-premises channels, like drive thru. Naturally, if you remove dine-in business, you sap an overwhelming number of positions from the books. And yet, restaurants are still required to set aside 75 percent of the loan.
This would be less worrisome for many operators if it didn’t leave only 25 percent for costs sinking countless restaurants. Andrew Rigie, the executive director at the NYC Hospitality Alliance, said the structure generates nowhere near enough money to help restaurants and bars in urban areas, like the Big Apple, cover what’s typically their biggest fixed cost.
Also, the forgiveness period lasts only eight weeks, and starts upon disbursement. Many restaurants have argued that since stores aren’t open now, rehired employees will be laid off again in eight weeks. The Independent Restaurant Coalition asked the federal government to push the forgiveness period until after businesses can reopen (since there really is no set date), to allow restaurants to spend more on rent, and to extend the loan repayment period from two to 10 years.
The New York Times recently took a look at how much money people would be making on unemployment under the additional $600 per week setup outlined by the relief bill. The so-called “replacement rate,” which is the share of a worker’s wages replaced by unemployment benefits.
What it found was that workers in more than half of the states would receive, on average, more in unemployment benefits than their normal salaries. The full chart can be seen here.
Replacement rates for each state are determined by dividing the average unemployment payment by the average 40-hour-a-week salary of those who receive unemployment benefits.
And that’s where the core of the restaurant issue lies.
Foodservice employees fall well below that average figure, since, far and away, it’s a minimum-wage business that has long operated on a cyclical cycle of triple-digit turnover. People work for a season. They advance to other jobs in different industries. They even bounce around the sector itself. Restaurants are often looked at as an entry into the workforce, not a long-term path people expect to ladder up in.
So this notion of “replacement rates” is bit muddied for restaurants. A provision of the stimulus package allows part-time and self-employed workers (not normally able to collect unemployment benefits) to receive funds. The New York Times said this could alter the makeup of the typical pool of people filing claims, as well as the average benefit paid out.
Restaurants, which have lost some 8 million jobs already, according to the National Restaurant Association, will represent a huge swath of this group. Per the Bureau of Labor Statistics, about 40 percent of employees in restaurants and bars work part time, which is more than twice the proportion for all other industries.
The New York Times calculated the process as follows: When you tack $600 on to the national average unemployment payment—$371.88 per week at the end of 2019—the replacement rate jumps from 38 percent to almost 100 percent. The basic premise being $600 is what Congress estimated it would take for the average American worker receiving unemployment to get to 100 percent of their income pre-COVID-19. It’s a much different aim than previous unemployment benefits, which were intended to keep people afloat but still encourage them to go look for a job.
Michele Evermore, a senior policy analyst at the National Employment Law Project, told The New York Times this is like “swinging an ax to hit an ant.” Why? Because the $600 figure is based on the average national income. It’s broad in scope. Low-wage workers, like the vast majority of restaurant employees, will simply end up making much greater amounts than they were before under this system.
Putting minimum-wage workers into the equation, UI benefits come in at minimum 160 percent of their typical wage, and as much as 270 percent in some states. That’s a significant leap from the 120–125 percent bump seen in The New York Times’ “average wage” chart. And, clearly, far different than the initial 100 percent goal. This chart below is inspired by The New York Times' creation.
If you look at how this unfolds in the country’s biggest cities (higher-wage markets), the data still flashes.
This chart below examines how challenging it might be from state to state to re-hire low-wage employees. It measures two dimensions—how attractive UI benefits are in the state relative to normal wage (for example, better UI benefits equals more worker leverage equals harder to re-hire), and two, what the unemployment rate was as of March in each state (lower unemployment rate equals less competitive to find jobs equals more worker leverage equals harder to rehire, and so on).
This all puts restaurants in an interesting position as dining rooms turn the lights back on. If you laid off workers and they’re collecting much higher rates, rehiring might not be as simple as saying, “hey, come back, we’re open again.” Not to mention how this factors into deciding whether or not you should have furloughed them in the first place. Who did it really benefit to hold onto employees and try to get the loan forgiven? Was it akin to keeping a worker hostage? And is bringing them back to recover the loan “forcing” them back to work instead of welcoming them back when they’re ready?
There are many ways to look at that, and it likely comes down to the restaurant’s relationship with its employees and individual circumstance. It’s simply not a one-size-fits-all process.
Datassential conducted some recent unemployment research, asking a pool that said they were laid off/furloughed due to COVID-19 if they were offered their pre-coronavirus job back (same pay, same place) would they rather:
- Go back to work at that same job immediately: 54 percent
- Wait until unemployment benefits run out (then go back to that same job): 40 percent
- Neither—would not go back to that same job: 6 percent
While it’s uplifting to see the first point rank highest, 40 percent is still a pretty sizable hurdle to address.
But there’s also an unfortunate reality that could work in operators’ favor, especially for those trying to increase staffing levels in the very near future.
In the last five weeks, more than 26 million have filed for unemployment insurance, a new record, or about 16 percent of the U.S. workforce. The U.S. Department of Labor said the seasonally adjusted unemployment rate was 11 percent for the week ending April 11. The downfall erased the gain of 22 million jobs between September 2010 and February of this year.
However, despite record-high claim numbers, expanded unemployment benefits are not being enjoyed by all who need them.
The Associated Press found that seven out of every eight Floridians who filed claims in three weeks between mid-March and early April were still waiting for their claims to be processed as of last week. About 66 percent of claims in California and Texas and 30 percent of claims in New York were backlogged.
There have been widespread complaints with long wait times on phones, busy signals, error-prone online applications, and other setbacks.
The Pew Research Center reported that, although more than 11 million Americans filed first-time unemployment claims in March, “the wide variety of methods states and territories use to administer their jobless programs have resulted in wide disparities in who has received their payments, and how much those payments were worth,” according to Vox.
As a result, Pew’s analysis of Labor Department Statistics said a mere 29 percent of jobless Americans received benefits in March. It varied widely, with nearly 66 percent of unemployed Massachusetts residents receiving their benefits, compared to just 7.6 percent in Florida.
Pew credited a “hodgepodge of different state rules,” for the disparity. In some states, for instance, workers must wait a week before they can start collecting benefits. In others, if they receive commission, rather than standard wages, they’re ineligible for aid.
The states where the fewest jobless people (under 15 percent) received benefits was the South. The states where the most jobless people (more than 40 percent) received benefits were in the Northeast and Midwest.
Also as Vox explained, “the amount of the benefits also varied widely, because states cap benefits in relation to a person’s earnings, at different amounts, from $235 per week in Mississippi to $823 per week in Massachusetts. Some states offer additional benefits for dependents; others don’t.”
Bluecrew, a staffing technology platform, surveyed 1,650 people April 17–18 and found 42 percent of hourly workers have already filed or plan to file for unemployment benefits, compared to just 17 percent of salaried workers. Nearly a third (30 percent) have had to file or plan to file for unemployment and 40 percent said they were concerned they won’t be able to access unemployment or government assistance due to technical glitches or confusing processes.
Over half (57 percent) said they were troubled they wouldn’t be able to find a new job if they have lost or may lose their job. Seventy-eight percent are worried they won’t be able to make ends meet during the pandemic, likely due to the fact that nearly half of hourly workers (47 percent) have less than $1,000 in savings.
Additionally, the report showed real hourly worker confusion over the CARES Act. Close to half (47 percent) said they were aware of the CAREs Act but didn’t know if they qualify or have no idea what it is. Further, 46 percent fear that overloaded government systems will prevent them from accessing unemployment benefits or other government assistance.
Among those still working, safety on the job was another concern: 51 percent reported their employers are not offering any additional relief or benefits amid the pandemic. The majority (54 percent) are worried about being exposed to COVID-19, and 18 percent are considering quitting their job due to it.
In sum, restaurants looking to rehire employees this week and in the coming days might be staring down a different challenge than they expected. It could depend on whether or not their employees received benefits and/or are willing to continue trying to access unemployment aid that was already difficult to secure pre-pandemic. That’s not to call this turn a positive, but it doesn’t change the fact restaurant owners offering full-time positions to former workers might now carry a different tune than if the system was operating more efficiently. At the least, it's a conversation operators need to candidly have with many employees.
And in terms of whether or not people need to get back to work if offered a job by a restaurant or otherwise give up their unemployment benefits, as was the case before, it’s not so cut-and-dry under COVID-19 conditions.
Bret Cohen and Suhail Seth, partners of law firm Nelson Mullins, told FSR previously, “In terms of state unemployment benefits, while the law is developing almost daily in response to COVID-19, a furloughed worker who refuses to return to work may be ineligible for state benefits ... Whether or not an employee will need to prove that they are actively looking for work to receive unemployment benefits will depend on the applicable state. While that requirement was generally the norm for most states prior to COVID-19, many states have relaxed, or in some cases even eliminated, these job search requirements with respect to eligibility for unemployment benefits arising out of the COVID-19 pandemic.”
“In fact, the CARES Act requires states to be flexible in their requirements that workers be able and available to work, where they are unable to search for work because of COVID-19, including because they are sick, quarantined or are subject to movement restrictions,” they added. “Once the pandemic is over, it would be reasonable to assume that these states will revert back to the pre-existing eligibility requirements for unemployment, but the uncertainty around the pandemic and when it will end could alter this assumption.”
It’s also worth keeping in mind the $600 weekly additional payments are expected to expire at the of July. So the longer this claims mess drags out the more the narrative shifts. Early on, it seemed almost illogical to expect people to forfeit months worth of significantly increased funds so they could return to a restaurant—a job they probably didn’t view as a long-term career anyway.
If you measured it at four months, as originally touted, a restaurant worker could bank their entire year’s earnings in that abbreviated timeframe.
A quick look at the math: an employee working 35 hours per week at $14 per hour, would make $490 per week. Under typical UI benefits (47 percent), we’re looking at $230. Under the stimulus package, it jumps to $830 per week—an increase of 70 percent.
For someone working half those hours, normally making $245 per week and able to make $115 on unemployment, they’re now bringing in $715—just about triple what they had been earning.
The best approach to all of this is to gauge the emotional temperature of your employees. Not just financially, but also if they feel ready to return and serve customers. Is the restaurant doing everything it can to keep employees healthy? And are their systems and options in place, like emergency pay, to keep people from feeling pressured to work if they’re sick?
On April 23, the Equal Employment Opportunity Commission updated its guidance to address employer testing for COVID-19, noting that it is permissible during the pandemic under the ADA.
The ADA requires that any mandatory medical test of employees be "job related and consistent with business necessity.” Applying this standard to the current circumstances of the COVID-19 pandemic, employers may now take steps to determine if employees entering the workplace have COVID-19 because an individual with the virus will pose a direct threat to the health of others. Therefore, an employer may choose to administer COVID-19 testing to employees before they enter the workplace to determine if they have the virus.
Meaning, restaurants should be held responsible for the well-being of employees as well as customers. And that could be the first step toward returning this labor conversation back to some semblance of normal.
Houston restaurateur Levi Goode, chef/owner of Goode Company, announced Tuesday that it’s instituting mandatory COVID-19 testing for all current employees. The company is working with Hamilton Health Box, a primary and urgent care microclinic operator.
This follows the 11-unit group’s March decision to provide no-cost testing to those who wanted it as a way to help employees gain peace of mind, the company said. Tuesday’s decision followed Texas’s call to reopen restaurant dining rooms.
“At Goode Co. we are fully committed to serving the absolute best on both sides of the plate. “These screenings allow us to provide the highest possible care to our employees and in turn to our guests,” Goode said in a statement. “Our guests deserve transparency and the knowledge that we as a company are doing all that we can to keep them healthy and safe in our restaurants.”
Additionally, the company is providing masks and gloves, and temperature screening employees as they arrive. It’s rolling out paper menus, single-use condiments, and increasing space between tables in the dining rooms for guests.
It’s also possible mid- to long-term that restaurants are suddenly pulling from a wider labor pool. Before COVID-19, the market was tight to historic proportions, with unemployment rates running sub 4 percent for months on end—the lowest jobless figures seen since 1969.
Bruce Reinstein and Tim Hand of Kinetic12 Consulting said coronavirus could create a short-term labor surplus. However, the high-stakes nature of life after COVID-19 will make hiring practices even more critical. “As revenue growth allows, we expect to see expanded benefits and perks offered, such as broader healthcare, daycare, free/discounted employee meals for off-shift hours and family take-home meal discounts,” they said. “Wages will go back to being based on skillsets, handling multiple stations and reliability as opposed to simply a way of attracting and retaining people.”
Also, employees will begin “scorecarding” restaurants on their sanitation and safety practices—something hard to imagine a few months ago. This could end up being a real determining factor in where people choose to work, Reinstein and Hand said.
They also see a shift in employee evaluation from the side of restaurants. “We see this practice becoming more formalized through titles, wages, and benefits because having a core group of highly trained, experienced and trusted employees will become even more crucial to success in our new post-COVID normal,” they said.
This will include the practice of holding “two jobs” being formalized. “No longer will staff need to hide their other job or work around two over-lapping schedules. This will also lead to better partnerships between non-competing restaurant operators and other retailers,” they said.