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By Tiffany Regaudie
With growing national pressure to increase the federal minimum wage in the U.S. from $7.25/hour, restaurant operators are starting to think about how they will adjust their businesses to a $15 restaurant minimum wage.
The good news is that several states in the U.S. (and provinces in Canada) have already increased their minimum wage, tipped minimum wage, and tip credit in the past few years. These states and provinces demonstrate that there are some payroll strategies you can employ to cope with rising minimum wage without firing your staff or compromising customer service.
In this article, we’ll tell you everything you need to know about restaurant minimum wage increases and dealing with increased labor costs, including:
In the U.S., the current federal minimum hourly wage is $7.25, and 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.
Here are the current U.S. state minimum wage rates for 2021 and the planned increases:
Alabama: $7.25/hour (no state minimum wage law).
Alaska: $10.34/hour. Planned increase on January 1, 2022.
Arizona: $12.15/hour. Planned increase on January 1, 2022.
Arkansas: $11.00/hour for businesses with 4 or more employees.
California: $13.00/hour for businesses with 25 or fewer employees and $14.00 for businesses with 26 or more employees (several cities also have their own minimum wage laws). Planned increase to $14.00/hour for businesses with 25 or fewer employees and $15.00/hour for businesses with 26 or more employees on January 1, 2022. By January 1, 2023 California’s minimum wage will be $15.00/hour for all employers.
Colorado: $12.32/hour. Planned increase on January 1, 2022.
Connecticut: $13.00/hour. Planned increase to $14.00/hour on July 1, 2022 and $15.00/hour on June 1, 2023.
Washington D.C.: $15.20/hour.
Florida: $8.65/hour. Planned increase on January 1, 2022.
Georgia: $7.25/hour ($5.15/hour for employees not covered under FLSA).
Illinois: $11.00/hour (for employers of 4 or more employees).
Indiana: $7.25/hour (for employers of 2 or more employees).
Louisiana: $7.25/hour (no state minimum wage law).
Maine: $12.15/hour. Planned increase on January 1, 2022.
Maryland: $11.60/hour for businesses with 14 or fewer employees and $11.75/hour for businesses with 15 or more employees. Montgomery Co. also has its own minimum wage laws.
Massachusetts: $13.50/hour. Planned increase to $14.25/hour on January 1, 2022, and increase to $15.00/hour on January 1, 2023.
Minnesota: $10.08/hour for large employers with annual revenues of $500,000 or more, and $8.21/hour for small employers with annual revenues of less than $500,000. Planned increase on January 1, 2022.
Mississippi: $7.25/hour (no state minimum wage law).
Missouri: $10.30/hour. Planned increase to $11.15/hour on January 1, 2022, and increase to $12.00/hour on January 1, 2023.
Montana: $8.75/hour ($4.00/hour for employers grossing <$110,000 in annual sales and not covered by FLSA). Planned increase on January 1, 2022.
Nebraska: $9.00/hour (for employers of 4 or more employees).
Nevada: $9.75/hour ($8.75 if the company provides health insurance). Planned increase on July 1, 2022.
New Hampshire: $7.25/hour.
New Jersey: $12.00/hour. Planned increase to $13.00/hour on January 1, 2022, increase to $14.00/hour on January 1, 2023, and an increase to $15.00/hour on January 1, 2024.
New Mexico: $10.50/hour. Planned increase to $11.50/hour on January 1, 2022, and increase to $12.00/hour on January 1, 2023.
New York: $12.50/hour.
New York City: $15.00/hour ($14.00/hour for Long Island & Westchester).
North Carolina: $7.25/hour.
North Dakota: $7.25/hour.
Ohio: $8.80/hour (for businesses grossing >$319,000 per in annual sales). Planned increase on January 1, 2022.
Oklahoma: $7.25/hour ($2.00/hour if a company has >10 employees or grosses >$100,000 in sales).
Oregon: $12.75/hour. Planned increase to $13.50/hour on July 1, 2022.
Rhode Island: $11.50/hour.
South Carolina: $7.25/hour (no state minimum wage law).
South Dakota: $9.45/hour. Planned increase on January 1, 2022.
Tennessee: $7.25/hour (no state minimum wage law)..
Vermont: $11.75/hour (applicable to employers of 2 or more employees).. Planned increase to $12.55 on January 1, 2022.
Virginia: $9.50/hour (applicable to employers of 4 or more employees).
Washington: $13.69/hour. Planned increase on January 1, 2022.
West Virginia: $8.75/hour (applicable to employers of 6 or more employees at one location).
This information is current as of August 2021. Please visit the DOL’s webpage for the most current U.S. minimum wage rates by state.
Here are the current Canadian minimum wage rates for 2021 and the planned increases:
British Columbia: $15.20/hour.
Manitoba: $11.90/hour. Planned increase to $11.95/hour on October 1, 2021.
New Brunswick: $11.75/hour.
Newfoundland & Labrador: $12.50/hour. Planned increase to $12.75/hour on October 1, 2021.
Northwest Territories: $13.46/hour. Planned increase to $15.20 on September 1, 2021.
Nova Scotia: $12.95/hour.
Ontario: $14.25/hour. Planned increase to $14.35/hour on October 1, 2021.
Prince Edward Island: $13.00/hour.
Saskatchewan: $11.45/hour. Planned increase to $11.81/hour on October 1, 2021.
This information is current as of August 2021. Please check with Restaurants Canada for Canada’s current minimum wage rates by province.
As a restaurant owner, labor costs are some of your most substantial costs. An increased minimum wage for restaurant workers 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 payroll pain you’ll feel.
Beyond the required 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 minimum wage increases, you’ll also need to pay attention to predictive scheduling laws, which impact the way you schedule your staff.
So the impact is clear: minimum wage increases 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 an increased minimum wage for restaurant workers.
To combat a rising restaurant hourly wage, many restaurateurs usually do one of two things:
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 price increases and firing staff aren’t the best solutions, what is?
Below are six practical strategies you can use right now to help you deal with the rising minimum wage and keep the cost of payroll down.
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:
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 menu price increases 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.
You know that certain times of the year are busier than others: the holidays, summertime, and city-related festivals or events. If you’re used to hiring 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 payroll 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.
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 restaurant hourly wage rates.
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 payroll 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 – a move that comes with big payroll savings. Some POS systems integrate employee scheduling software to make this process a lot easier on you.
You can also save on payroll in smaller ways that will build up over time, such as cutting back on the number of staff you schedule at 5:00 pm, 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:
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.
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.
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.
It’s no secret that restaurant staff turnover rates in the restaurant industry are high. In fact, the Bureau of Labor Statistics announced that the turnover rate for the restaurant industry reached a whopping 130.7% in 2020, compared to 78.9% in 2019.
But here’s the thing: retaining staff is one of the best ways to keep your labor costs down over the long-term – especially amidst rising restaurant minimum wage. If you invest and look after your current team, they’ll be happier, work harder, deliver better customer service, receive better tips, 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:
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 of cash.
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:
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:
Nothing rewards an employee more than professional advancement – and you’ll be creating some genuine loyalty in the process.
Rising minimum wage will continue over the coming years, and the immediate impact on your business payroll is uncontrollable. 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 save cash and remain profitable.
Tiffany was the Content Marketing Manager at TouchBistro, where she shared knowledge with restaurateurs on how to run their business. She’s passionate about traveling the world and getting to know communities through great food.
By Katherine Pendrill
By Debra Weinryb
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