If you’re scratching your head over what to do about the rising restaurant minimum wage, you’re not alone.
But we have some good news.
You can cope with rising minimum wage without firing your staff or compromising customer service.
You just need some strategic thinking, creative know-how, and ingenuity.
The minimum wage in the U.S. and Canada has increased in many states and provinces, and the trend is here to stay. While restaurant employees welcome the changes, restaurant owners face a lot of challenges when they’re staring down rising labor costs.
For instance: Bob Garner, co-owner of a regional full-service restaurant in Maryland, estimated that wage increases would cost him up to $187,000 per year for one location.
But it’s not all doom and gloom, and rising restaurant minimum wages don’t have to cause sleepless nights.
This article will tell you:
- Which states and cities are currently seeing minimum wage increases
- How wage increases will affect your business
- Six ways you can deal with rising wages (and no, you don’t have to increase prices across the board and fire all your staff!)
Will the Rising Restaurant Minimum Wage Affect Me?
In the U.S., the federal minimum hourly wage of $7.25 has remained unchanged since 2009.
But hourly wages in cities and states continue to rise. When your business is located in an affected region, the federal minimum wage takes a back seat to the state or city rate.
Some research estimates that by 2022, 17% of Americans will live in a state or city with a minimum hourly wage of $15.
On January 1, 2018, 18 states and 20 cities in the U.S. increased their hourly minimum wage. Here’s where minimum wage has risen, by city and state:
- Alaska: $9.84/hour
- Arizona: $10.50/hour
- California: $11/hour for businesses with 26+ employees; $10.50/hour for businesses with less than 25 employees
- Colorado: $10.20/hour
- Florida: $8.25/hour
- Hawaii: $10.10/hour
- Maine: $10/hour
- Michigan: $9.25/hour
- Minnesota: $9.65/hour for businesses with $500,000 or more annual gross revenue; $7.87/hour for businesses with less than $500,000 annual gross revenue
- Missouri: $7.85/hour
- Montana: $8.30/hour
- New Jersey: $8.60/hour
- New York: $10.40/hour; $11.75/hour for fast food workers
- Ohio: $8.30/hour
- Rhode Island: $10.10/hour
- South Dakota: $8.85/hour
- Vermont: $10.50/hour
- Washington: $11.50 an hour
- Albuquerque, New Mexico: $8.95/hour
- Bernalillo County, New Mexico: $8.85/hour
- Cupertino, California: $13.50/hour
- El Cerrito, California: $13.60/hour
- Flagstaff, Arizona: $11/hour
- Los Altos, California: $13.50/hour
- Milpitas, California: $12/hour
- Minneapolis, Minnesota: $10/hour for businesses with 100+ employees
- Mountain View, California: $15/hour
- New York City: $13/hour for businesses with 11 or more employees; $12/hour for businesses with 10 or fewer employees; $13.50/hour for fast food workers
- Oakland, California: $13.23/hour
- Palo Alto, California: $13.50/hour
- Richmond, California: $13.41/hour
- San Jose, California: $13.50/hour
- San Mateo, California: $13.50 /hour
- Santa Clara, California: $13/hour
- SeaTac, Washington: $15.64/hour
- Seattle, Washington: $14/hour for if you don’t offer medical benefits; $11.50 if you do offer medical benefits
- Sunnyvale, California: $15/hour
- Tacoma, Washington: $12/hour
Multi-year increases will also continue as local governments try to keep up with the rising cost of living.
New York City Minimum Wage: The details
Thanks to a New York State bill dating back to 2016, the New York City minimum wage has increased in 2018. For most workers in New York City, the hourly wage increased from $11 to $13 an hour.
But there are some notable exceptions:
- If your business has 10 or fewer employees, the hourly pay is $12 (an increase from $10.50)
- The tipped employees’ wage remains unchanged at $7.50 an hour
You can expect increases over the next few years as New York City targets $15 an hour for most workers by 2021. The tipped employees’ wage target will be $10 an hour.
This would mean increases for tipped employees, many of whom are making $25 an hour or more with tips. For many restaurateurs, this will be a big blow to their bottom line.
Chicago Minimum Wage: The Details
The minimum wage in Illinois is currently $8.25, with a target of $15 by 2022. But, yet again, the cities seem to be paving the way.
In Chicago, a pay rise from $11 to $12 an hour comes into effect in July 2018 for non-tipped employees, while tipped employees can expect increases to match cost of living. The increases follow an ordinance passed in December 2014, and the target is $13 an hour by 2019.
Austin Minimum Wage: The Details
Regular and temporary employees in Austin will see increases to minimum wage. Temporary employees can expect a pay rise to $13.84 an hour effective February 2018, more than $6 higher than the Texas minimum wage of $7.25.
Ontario Minimum Wage: The Details
The situation in Canada is a similar one. As of January 1, 2018, the Ontario minimum wage increased from $11.60 to $14, which is higher than the previously highest rate of $13.60 in Alberta. If you’re a restaurant owner in Ontario, expect a 31.6% rise over the next 18 months.
How Does the Rising Restaurant Minimum Wage Affect Restaurants?
As a restaurant owner, labor costs are some of your most substantial costs. Rising wages will lead to an increase in these costs, which will cause shrinking profits in the short term. And the more staff you have, the more pain you’ll feel.
Beyond government-legislated increases in labor costs, you may also need to increase wages for your entire team so that you can maintain a fair pay gap between more experienced staff and your staff that are making minimum wage. You’ll also need to adjust payroll for higher contributions to workers’ compensation and liability insurance.
And on top of rising minimum wage, you’ll also need to pay attention to predictive scheduling laws, which impact the way you schedule your staff.
So the impact is clear: rising minimum wage will affect your business immediately.
Your challenge is to figure out how to deal with it.
Shrinking profits don’t need to be your long-term narrative if you adapt, find ways to keep costs down, and streamline your operations. Here are six ways to deal with the rising cost of your labor.
How Can I Deal with the Rising Minimum Wage and Remain Profitable?
Many restaurateurs usually do one of two things:
- Raise menu prices across the board
- Fire staff
If you resort to these tactics, you risk chasing customers away and losing quality staff – which isn’t ideal in an industry as competitive as the restaurant industry.
But if raising prices and firing staff aren’t the best solutions, what is?
Here are six practical strategies you can use right now to help you deal with the rising restaurant minimum wage:
- Experiment with new pricing strategies
- Trim seasonal staff
- Invest in the right technology
- Reduce operating hours
- Redesign your menu
- Focus on staff retention
Here we’ll tell you how to implement these strategies to save on labor costs, make more money, and ultimately see less of a shrinking profit margin in the long run.
1. Create a smart pricing strategy.
While knee-jerk price increases aren’t a great idea, you can raise prices mindfully with the right approach. Plan price increases according to your POS sales data by analyzing:
- Which items sell best
- Your most popular menu modifiers
- Which items sell best during certain times of the day
When you analyze sales data alongside the cost of your inventory, you can increase prices of high-volume, high-margin items only. Coffees and sodas, for instance, sell at a higher volume and at a higher margin, but the rise in price will also put less of a burden on your customers’ pockets.
Tier pricing is also a great option. Tier pricing lets you charge customers different prices for different options. For example, you likely have customers who order their meals to go and others who want a sit down dining experience. With tier pricing, you would charge your to-go customers less and give them smaller portion sizes.
David Kostman, owner Nanoosh Mediterranean Hummus Bars and Counters in New York, charged 10%-13% less for people ordering to go. While he admits the results were hard to quantify, his strategy did increase his to-go business and provide an extra revenue stream for his restaurant.
2. Trim your seasonal staff.
You know that certain times of the year are busier than others: the holidays, summertime, and city-related festivals or events. If you hire more seasonal staff during these periods, you may want to shift your approach and ask your regular employees to work more shifts during the busy season.
If you don’t know whether you can afford your staff during busy periods, analyze your past volume for these times and compare sales against your labor reports. And if you don’t have quick access to sales and labor reports, now’s the time to invest in technology that’s going to give you the visibility you need to survive long-term.
3. Invest in the right technology.
Sometimes you have to spend money to make – and save – money.
Your POS should be your money-saving hub. With POS data and analytics and self-ordering kiosks, you can give your business the tools it needs to deal with rising labor costs.
POS labor reports
You may be able to knock off some low-hanging fruit simply by reviewing your labor reports and analytics. Restaurateurs who don’t use data to make scheduling decisions are missing out on some efficiencies that could save them significant costs.
Check your labor reports regularly against seasons, holidays, times of days, etc. to make sure you schedule the exact amount of staff when you need them – and not when you don’t. You may have overprojected your staffing needs during last year’s Superbowl event, and your labor report from that time can remind you not to schedule as many bartenders this year. Some POS systems integrate employee scheduling software to make this process a lot easier on you.
You can also save in smaller ways that will build up over time, such as cutting back on the number of staff you schedule at 5:00pm, when everyone is just starting dinner and only ordering drinks. Scheduling the bulk of your dinner staff just an hour later can save on labor costs in the long run.
Automation is taking the restaurant industry by storm. A lot of quick service restaurants are using self-ordering kiosks to streamline their customer service and complement existing staff.
Restaurants using self-ordering kiosks are seeing several benefits:
- An increase in average check size through automated upselling
- Better promotion of high-margin items through beautiful menu images and strategic placement
- A reduction in front-of-house labor costs
Self-ordering kiosks also allow you to change menu prices daily, so you can capitalize on increasing demand.
But a word of caution: self-ordering kiosks can lead to higher order volume, which can place more strain on your back of house and possibly increase your need for more staff. Not a bad problem to have if you’re making up the difference, but you’ll want to plan appropriately.
4. Reduce your operating hours.
Are certain days of the week less busy than others?
If you’re really feeling the rise in labor costs, you may want to consider cutting your hours when you’re just not that busy. You’ll be cutting labor costs and other operating expenses, and you’ll be able to devote more time and energy to those peak periods when you need to be on top of your game.
5. Perfect your menu design – with psychology.
Have you ever noticed how grocery stores display their produce? Certain items are usually always in your line of sight – on shelves or special displays. And for good reason: these are high-margin items that store owners want you to buy.
You can and should do the same with your menus. Place high-margin items where they’re the most visible to the customer. But where exactly is the best place to put them?
According to Aaron Allen – a global restaurant consultant and expert on the psychology of menu design – when we look at a menu our eyes go to the middle first, then the top right, and finally the top left. This is known as the Golden Triangle, and you should place meals with the highest profit margin there.
But perfecting your menu isn’t only about putting menu items in the right place. The psychology of design includes choice of color, storytelling, the use of nostalgia, clever descriptions, decoy dishes, and the number of options.
Decoy dishes are expensive items placed at the top of menus so diners perceive other items as better value for money.
As for number of options, conventional wisdom suggests that more choice is better – but this isn’t always true. Too much choice can cause stress and lead to customers not making a decision at all. That’s why smart restaurateurs limit choices by offering only seven dishes in each section, so diners feel in control.
6. Focus on retaining staff.
It’s no secret that staff turnover rates in the restaurant industry are high. From 2015 to 2016, staff turnover rates were above 70%.
But here’s the thing: retaining staff is one of the best ways to keep your labor costs down over the long-term. If you invest and look after current team, they’ll be happier, work harder, deliver better customer service, and look after you and your bottom line.
But what can you do to keep your staff happy? Here are three ways:
For new hires, you may believe in the “get your hands dirty approach.” You give employees quick training and then let them jump in the deep end. But mistakes can – and do – happen, which can cost you money.
Instead, make sure to cover your bases from the start:
- Train employees on how to properly use your POS
- Be clear about your customer service standards
- Implement a staff shadowing procedure
- Provide new staff members with an employee handbook
Your employee handbook is your point of reference for employees. It provides employees with all the information they need about how things work in your restaurant, from the day they start – which will save your business from human error that could otherwise cost you a lot money.
Recognize and reward employees
How would you feel if you always put your blood, sweat, and tears into a job, but were never recognized or rewarded?
(Never mind. You probably do know how this feels as a business owner.)
Your employees will be more likely to stay if you recognize them for hard work and excellence. And, if you reward them for their excellence, they’ll repeat their excellent behavior. Over. And over. And over. Again.
For you this means a better customer experience and more profits.
But how do you recognize and reward such excellence? Here are some ways:
- Introduce an employee of the month award to motivate your employees
- Create a daily reward for the employee who has the highest sales at the end of their shift
- Provide small rewards like a free meal or even public recognition for their efforts
- Room for advancement
If you reward top-performing employees with promotions, you increase their motivation because they can see a future with your restaurant. Identify your top performers by:
- Noting who goes above and beyond their job description
- Takes new hires under their wing and trains them without you asking
- Steps up to the plate when a shift manager is absent, so things run smoothly
Nothing rewards an employee more than professional advancement – and you’ll be creating some genuine loyalty in the process.
The rising minimum wage will continue over the coming years, and the immediate impact on your business is uncontrollable. You’ll see rising labor costs that will impact your bottom line.
But the long-term impact doesn’t have to lead to shrinking margins and closure. You just have to plan and take a strategic approach to remain profitable.
And, in the end, all you really want is to run the best business you can, right?