If you follow the news, you’ve probably heard about the new minimum-wage increases in 20 states and 20 cities. At the start of this year, millions of American workers, including servers and cooks, saw a bump in pay due to the minimum-wage increases. It’s possible your restaurant is affected. If you’re not totally sure how the wage hikes will affect your business, we’ve created this primer to help you better understand the changes.
If you want to understand what led to the new minimum-wage laws, it’s important to know about the “Fight for $15” movement. Seven years ago, a group of fast-food workers gathered in New York City holding signs with big block letters: “FIGHT FOR 15.” They had reached a breaking point, struggling to meet their basic needs with earnings as little as $7.25 an hour.
For the next three years they formed picket lines outside of restaurants like McDonald’s and Taco Bell, demanding a $15 minimum wage. While their demand seemed a tall order, the grass-roots movement didn’t fizzle out. Instead, the “Fight for $15” movement rippled out and pushed up the pay in some parts of the country.
As of January 1, 2019, the federal minimum wage is $7.25 an hour.
Twenty states and 21 cities have increased the minimum wage this year (you can see a full list below; learn more about each state mandate here). As a result, over 5 million workers across the country will get a bump in base pay.
The new state minimum wages were ushered in on January 1, 2019. But for cities such as New York and Seattle, which agreed to $15 per hour, the new wages will be pushed up in increments across several years, giving business owners enough time to transition. For example, New York City restaurants won’t be required to pay workers $15 per hour until at least 2021.
Many restaurant operators are worried that higher labor costs are going to put a squeeze on their business. The National Restaurant Association, representing more than 380,000 restaurant locations, has loudly voiced its resistance to minimum-wage increases since 2016. The group maintains that pay hikes would force restaurants to freeze hiring, raise menu prices, and cut workers’ hours, according to CBS News.
But in academic circles, the jury is still out. The New York Times reports that “large stacks of academic papers have shown that, for the average worker, a minimum-wage increase does more good in raising pay than it hurts by prompting some employers to cut back on hiring or hours.” Other studies, including the 2015 Purdue University study, suggest that wage hikes would lead to markups in menu prices. Curiously, in one case, a research team of economists were caught flip-flopping on their position. Jacob Vigdor, an author of the study, explains their reversal: the truth is complicated—the minimum-wage hikes affect different groups of workers differently.
If your restaurant offers catering, that arm of business probably won’t be affected, according to catering practice leader Jim Rand. Because the average bill for a catering order ($180) is much higher than a typical dine-in check ($10), catering comes with a better profit margin. That means that catering has more room to absorb higher labor costs, Jim Rand says. “I actually don’t think the changes are going to have some huge dramatic impact on catering. Though I don’t think they’re going to boost business, either—but it may. It may lead restaurants to look harder at catering as an incremental revenue channel to offset some of their other costs.”
Restaurants are experimenting with a few approaches to stay afloat of the new expenses. Here are some things that well-known restaurateurs, like Josh Lewin and Katrina Jazayeri of Boston’s Juliet, have been doing to adjust to the higher labor cost. These are just some ideas; you should find an approach best suited to your particular restaurant.
Learn how to strengthen your business with catering.