Tuesday, December 16, 2008

A tip about the minimum wage law

Ten years ago, the people of Oregon voted in a new minimum wage law that was indexed to the cost of living. I said back then that it was an dangerous law and this year, the damage seems to be greater than ever.

I recall the day after the law was passed. As I walked into the diner, the cashier was extremely happy. I asked her what was making her so happy and she said, "The minimum wage law was passed. I get a raise!".

" I hate to burst your bubble.", I told her, "but where you usually get a raise, this year the business will not be able to because they have to give a huge raise to all of the servers. ". She had a shocked look on her face as I talked to her and she began to realize that instead of getting a raise, the raise was being given to the servers as there was no way to raise menu prices high enough to compensate for a indexed raise across the board.

Back then, we paid cashiers a couple of dollars over minimum. Now, they are lucky to get a dollar over and if you looked at the percentage difference, it would be even more contrasting. Even dishwashers were paid much higher than minimum and now start at minimum and only get slightly higher at best. The same goes with cooks who were double the minimum and now are lucky if they get 50% higher.

The minimum wage law actually hurts people working in sit down restaurants unless they are the servers. And the sad thing about that is that the servers are the highest paid employees.

For instance, a normal light percentage on tips is over 10%. What I mean by that is most people will pay $1 to $10 and if it goes above that, they usually go up to $2. Now there are others who don't tip but they are few and far between. So, if a server serves 10 customers in an hour (which is not that much), they will be making an additional $10 per hour. If they serve 20, then it goes to $20.

On January 1st, those servers will be receiving a 45 cent per hour raise or nearly 6%. Now, I really like all of my servers but there are people in the back of the house that deserve this raise even more and will probably not see a raise until around after the first quarter when we can better assess the damage that the first raise has given.

Back when this first started, an average restaurant looked to keep it's payroll to around 1/3 of it's sales. Now, it is fast encroaching 1/2. If you add that with a standard 1/3 cost of food, you will get 1/6 left for the restaurant to pay all of it's other expenses with including insurance, licenses, utilities, advertising, etc. Now, please don't take that as a complaint. I know what I was getting myself into when I took this business. It is just a fact of doing it.

The decisions are fairly simple. We must either raise prices (and we must be careful how much) or cut back on staff and service.

This will not affect fast foods or drive in type restaurants, only the ones where you sit down and are served.

With restaurants hurting all around, I wonder how much this will affect the ones who have been weakened by the hurting economy.

In my mind, the legislature can correct this problem with a simple tip credit. I am not advocating taking money away from them but simply freezing the wage where it is at and thus causing the ability for restaurateurs to give the raises where they are better needed.


Bend Oregon Restaurants said...

Very interesting. Thank you for providing that insight. I wouldn't have known. I was thrilled when I was working minimum wage jobs to get my raises during the Regan administration. I started out at $3.65 an hour (I think) as a dishwasher in a retirement home. I remember getting bumped up twice to $4.10. I never thought about how it impacted the company, just how it impacted my wallet.

diner life said...

Thanks BOR. Your figures sound pretty close. I don't remember starting anyone at minimum wage when this all started with the exception of the wait staff. The peoples good intentions when they voted for it were good but they just did not realize the impact on the others in the businesses who truely needed the money more ie Cooks, Dishers, and Cashiers.