Can California restaurants deal with $15 minimum wage hike?

Restaurant managers take note: California is one step closer to upping their minimum wage to $15/hour.

The state Legislature approved a plan recently to increase the state's minimum wage from $10 an hour to $10.50 in 2017 and incrementally to $15/hour by 2022.

And, according to the LA Times, restaurants and other food services companies will be the most affected by the minimum wage increase. The share of workers who would get a raise under the plan is at 15% for the restaurant industry. This is second only to the retail trade. For additional reference, health is third on the list at 8%.

For the past five years, restaurants have been a major driver in job growth. At the same time, profit margins for restaurants are paper thin, hovering between 4% and 6% on average, according to the National Restaurant Association.

So how can California restaurants possibly deal with the wage hike?

Tipping pools are right out. The US Ninth Circuit Court of Appeals ruled that tipping pools can only be used for front of house staff, leaving your back of house workers in the cold.

Tip credit is also out as restaurants in California aren't allowed to count tip credit toward overall wages. So we're talking about servers making $15 an hour, plus tips (if the tipping culture continues).

There's raising menu prices. In LA, several restaurants have already dropped tipping and increased menu prices. The familiar rallying cry for the change has been to "offer staff a fair, living wage" which translates into evening out the wage gap between front and back of house employees.

California restaurants will have a few options to deal with the state minimum wage increase

Of course, while the no-tipping experiment has gained legs in coastal states, it's faltered in the mid-west. But with the minimum wage hike being mandatory, if it forces a lot of restaurants into this model, the no-tipping system may flourish.

There's also tacking on service charges. Some California restaurants have implemented this system. By adding a service charge, the restaurant owns the revenue instead of the servers. And restaurants aren't required to share it with their employees. However, the general consensus among establishments that are using this model have announced that the charges go straight to employee compensation (wages & benefits).

This compensation methods ends up being a hybrid model as guests are still allowed to leave tips for the servers. This does a little to help your kitchen staff, though the compensation gap is still there unless the service charge goes only to back of house staff.

Reason to fret?

The minimum wage has gone up for restaurant employees in several places already. In NYC, min wage will be at $15/hour by 2018. Seattle bumped it's minimum to $11/hour (businesses with 500+ staff are required to pay $15/hr by 2017). In San Francisco, the minimum wage is now $12.25 and will also be $15/hour by 2018.

So it's still a bit too early to tell how the increased wages are affecting restaurants. Some Seattle restaurants have reported raising their prices by 20% or more to keep up. And restaurants that have had to close down claim that it had nothing to do with labor wages, according to the Seattle Times.

According to Oilver Pursche, writer for Forbes, the "sky is falling" mentality by some is "overblown." In an interview with Randy Gier, CEO of RAVE Restaurant Group, he said that restaurants that drop tipping for service surcharges will be "net-net for the employee and a wash for the employer", meaning it'll barely impact the industry.

“As long as everyone is being asked to play by the same rules, it won’t hurt the industry,” Grier said.

California restaurants, how are you preparing for the $15 minimum wage rate?

Kitchen staff image by star5112