Restaurants are Raising Wages to Attract and Retain Workers

Out of the worst tragedies, there are usually little beacons of awareness that shine through—lessons learned despite intense sadness. The pandemic was no different.

We learned to appreciate so many things we took for granted. In the restaurant industry, one of those things was our employees.

Don’t get me wrong. It wasn’t that we didn’t appreciate the job they did or the responsible ones that showed up not only for their shifts but also when others failed to appear. We just never fully realized what would happen when no one showed up, or answered our job postings, or chose to work in different industries that didn’t demand so much of them.

Now, we do.

The Thin Margin Industry

The average restaurant profit margin is around 2-6%. Small business analysts suggest that, for a general rule of thumb, 5% is a low-profit margin, and 10% is healthy. So, to remain competitive and profitable, restaurant operators have looked for opportunities to cut costs.

One of these is reducing labor costs through the use of states tipped minimum wage laws. Currently, the federal minimum wage for tipped employees is $2.13 per hour. For states operating under this wage law, restauranteurs only have to pay their employees more than this hourly rate when their wages and tips do not equal the federal minimum wage of $7.25. Obviously, not a livable wage and one that often requires restaurant employees to work more than one job.

Of course, a few states don’t allow tipped minimum wages, those being Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington. These may be the states that are more prepared for the new normal—paying restaurant workers more in order to retain and hire new talent, reduce wait times, and return to regular operating hours.

One Fair Wage

According to One Fair Wage, multiple studies document that these states report higher restaurant sales, restaurant employment, and small business restaurant growth rates than states that allow sub-minimum wage for tipped workers. They reported, “During an investor call this year, the Chief Financial Officer of Denny’s was quoted as saying even with California’s phased-in increase in the minimum wage—the chains performed better compared to other states, in terms of sales, guest traffic, and quality of service.”

In May of 2021, almost 80% of restaurant workers reported that they would only return to work or stay in the restaurant industry if they received a livable wage with added tips. In July, 710,000 restaurant workers quit their jobs. While restaurants and the National Restaurant Association have long thought that increasing wages would lead to mass closures and lost employment opportunities, restaurants across the nation are finding that this scenario is not coming to pass.

A new study from One Fair Wage documented over 1,600 restaurants in 41 states that raised their wages. Most of the restaurants in these states were paying $5 or less per hour. The ones in the study raised their pay to the full minimum wage with added tips, amounting to an average starting wage of $13.52 with tips on top. These restaurants have recognized the need for living wages, and over a thousand have requested that Congress enact a federal policy that would raise wages for all workers.

The reasons for this request include leveling the playing field so that large chains cannot undercut smaller businesses increasing their wages, and increasing spending power across the economy. This, in turn, allows more people to eat out and covers the increased cost of labor.

One Fair Wage quoted Michael Shemtov, owner of Butcher & Bee restaurants in Charleston and Nashville, “Raising the minimum wage and eliminating the sub-minimum wage for tipped employees will help level the field for all restaurants, improve the lives of our team members and strengthen local economies. Taking these actions independently can be challenging, but doing it collectively will help us make our industry better and ultimately stronger.”

The study listed restaurants across the nation that have raised their wages. In Alabama, the average wage came to $12.46 with tips on top, while Colorado saw an average wage of $16.40 with added tips.

One Fair Wage shared quotes from many other restaurant owners taking a stand for a living wage for their employees.

“When the Raise the Wage Act of 2021 was introduced on January 26, 2021, as part of President Biden’s American Rescue plan, the restaurant industry pushed back saying, effectively, it can’t be done. At &pizza, we know it can…”—Andy Hopper, owner of &pizza.

“When our dining rooms were forced closed during the pandemic, we saw it as an opportunity for real change in the restaurant industry. We decided to eliminate sub-minimum wage pay in our restaurants and adopted a model of all employees making above minimum wage with tips shared across all hourly non-management workers, and we instantly saw better and more equitable pay across all of our workers. It has literally changed lives.”—Katie Button, owner of Curate.

One of the arguments against raising wages suggested that diners were unwilling to pay more and that increasing menu prices would decrease sales. However, between rising food and labor costs, the year-over-year increase in restaurant menu prices is at the highest since 2009. And yet, diners continue to patronize restaurants, perhaps understanding that these changes have been a long time coming.

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