Discussing a fair and reasonable minimum wage for tipped employees must also include helpful ways restaurants can adapt to rising costs.
In the restaurant world, labor efficiency can make or break your business. New minimum wage laws for tipped employees are taking effect, and restaurant owners are shaken up by the possibility of losing profits. Fortunately, there are ways to mitigate the changes without losing employees or impacting the customer experience. Below, see our tips for using restaurant POS data to accommodate increased minimum wages.
Minimum-Wage Policies Kickstarted by Restaurant-Employees Movement
On January 1, 2019, seven states made a significant increase to minimum wage for all employees (including tipped employees). Massachusetts and Washington became the first states to raise minimum wage to $12, and Arizona, California, Colorado, Maine, and New York raised their pay minimums to at least $11. By February, New Jersey also joined ranks and increased its state minimum wage to $15, in March, Maryland announced the same pay floor increase.
(For a complete state-by-state breakdown, visit the Department of Labor’s site here.)
Driving the minimum wage changes are none other than fast-food employees, specifically those working for McDonalds. With their movement Fight for 15, they transformed the political dialogue surrounding minimum wage increases. Over the last five years, an improbable policy has become popular, made evident by nearly 1 in 5 US states adopting better wage policies and more states deliberating changes
Some business groups have long been unhappy with the movement, fighting against any federal minimum wage increases with the claims that it would ruin small businesses and trigger massive job losses.
The Impact New Minimum Wage Laws Have on Restaurants
There is a great confusion though, about the minimum wage requirements for tipped employees. And there is even greater confusion about how the changes will impact businesses. A number of servers make excellent money with tips alone and worry higher wages would dissuade customers from tipping the usual amount. Some surveys indicate that FOH staff don’t support an increase for that reason.
Considering the margins are already pretty slim for most restaurants—can business owners shoulder higher labor costs? To answer the question on any restaurant owner or manager’s mind, the affect it has on business is yet to be seen.
Economists have been weighing the pros and cons of minimum wage increases for decades, and what they can, more or less agree, upon today are these two factors:
- The rising minimum wage would lift millions of Americans out of poverty.
- The rising minimum wage would result in some job loss.
Regarding the latter, several teams of economists predict the job loss would not be as drastic as business groups claim. This 2016 paper from Michigan State University states, after significant data crunching, that a 10% increase in minimum wage would reduce overall employment from 0.5% to 1.2%.
A newer study by the University of Massachusetts, University College of London, and the Economics Policy Institute that reviewed the data from 138 cities and states that increased the pay floor between 1979 and 2016 conclude that a 7% increase would show little to zero change.
The discussion of increasing minimum wage becomes, then, one of leadership’s ethical responsibility to their staff. Large corporations like McDonald’s and Amazon, which recently made $15-minimum-wage a company-wide policy, can shoulder the increasing costs, ride out the bumpy wave of transition, and pick up steam once the dust settles. For the privately-owned restaurateur, most cannot rely on overflowing bank accounts as they find the right balance.
Minimum wage increases are a complex issue for restaurant owners striving to balance giving the right care to their workforce, complying with state laws, and maintaining profitability. Restaurants must now work closely with their payroll companies to ensure the right systems are in place to meet new state requirements.
For example, in Massachusetts, there is a new policy under the Grand Bargain legislation called a “tip credit.” Employees earn $4.35 per hour yet are required to receive $12 per hour. If the employee doesn’t earn the remaining balance in tips, the restaurant is responsible for covering the difference. If you haven’t already, start working now with a reputable accounting company that specializes in restaurants.
Keeping with the changes is crucial for restaurant owners. It’s vital to find ways to accommodate costs without hurting your team, losing profitability, or damaging your customer relationships.
How to Use Restaurant POS Data to Accommodate New Minimum Wages
Your restaurant point-of-sale system is going to be a useful tool. Below, we show you how to harness your restaurant data to continue to care for your employees and set an example for the industry.
Actual versus Scheduled Labors (AVS)
The AVS shows the variance between scheduled hours and actual hours in dollars. Tracking the AVS daily will provide clarity on the adjustments required for the rest of the week. To have a clear picture, calculate this metric for every department in your restaurant.
If you’re missing your labor target, but your sales projection is correct, either your schedule is unrealistic or your staff is working longer than necessary. Plus, you can minimize late arrivals, early departures, and extended breaks. To calculate AVS, compare the schedule you made, and presumably budgeted on, with the actual hours worked by employees. If it differs, you need to figure out why, and if your schedule is a realistic target or you need to raise your labor budget.
Give all managers a paper copy of the schedule. Ask them to monitor in and out times, and to take notes, if an employee was asked to stay or cut early, look for patterns at that same time next week. At the end of the week, discuss the notes and make schedule changes to shrink AVS variances.
Tracking Staff vs. Guests
Chart the relationship between your guest and employee counts by the hour. If labor is optimized, they should follow the same bell curve, you should see your employee and guest counts rise and fall together. If not, you’ve pinpointed your problem and you can change the schedule.
Changing your labor budget is not easy, especially if it has to go up, but knowing how, why, and when to change is essential in today’s restaurant industry- whether the motivation is to follow new laws, increase employee rentention, or optimize profitability. As you manage your labor costs, another recommended tip is to revisit your restaurant menu and make updates to reduce unnecessary costs like food waste