Closing Time? Minimum Wage Proposal Still Worries Restaurant Owners
by Christine Stuart | Feb 28, 2012 10:55pm
(5) Comments | Commenting has expired
Posted to: Business, Town News, Hartford, Jobs, Labor
Restaurant owners say their profit margins are smaller than what many lawmakers believe. So when they heard about the bill calling for an increase in both the minimum wage and the tip credit, many restaurant owners started doing the math. They figure that the bill will cost them hundreds of thousands of dollars per year and possibly force some to close their doors.
When Rep. Zeke Zalaski, co-chairman of the Labor and Public Employees Committee, opened up the public hearing Tuesday he reassured them that the bill’s language was a drafting error.
The tip credit is the lower wage paid to restaurant servers and bartenders because they also receive gratuities. The bill up for discussion Tuesday would increase that tip credit, but not to the $9.75 per hour that was included in the bill’s original — and erroneous, according to Zalaski — language.
Regardless, even an increase in the tip credit, which is 31 percent of the minimum wage, was worrisome to restaurateurs like Phil Barnett, who owns the Hartford Restaurant Group that includes Agave Grill, six Wood-n-Tap locations, and TD Homer’s Grill.
Barnett said the only thing his managers have control over is labor costs and goods, which amount to about 70 percent of the business. For those on the committee concerned his staff doesn’t make enough at the $5.69 and $7.34 per hour tip credit rate, he assured them his servers make about $20 an hour, and his bartenders make about $30 an hour when tips are figured in.
If the bill isn’t revised and the change to the tip credit stays in at $9.75, Barnett says it will cost him an additional $311,000 for labor for the first six months after July 1. If the bill is revised to only increase the tip credit a smaller amount, then he says he will still see an increase of $275,000 in labor costs during that same period.
“I don’t know where you think we’re going to find that money,” Barnett told the committee. “There’s only so much you can raise the prices on the menu.”
The National Restaurant Association reported in 2010 that pre-tax profit margins for its members were between 2 and 6 percent.
David Rutigliano, owner of the Southport Brewery Co. chain, said the legislation as written would cost him between $681,000 to $850,000 including taxes and workers compensation. If they revise it to the lesser increase, he says it will still cost him about $300,000 a year if he kept the same level of staff at his six restaurants.
Rutigliano said his servers and bartenders make about $25 an hour. He also was quick to point out that the $25 per hour, which includes gratuity, is what the servers and bartenders report on their taxes. So the state is still getting its money and it’s not putting anyone out of business.
But Arindrajit Dube, an assistant professor of economics at the University of Massachusetts, told the committee there’s no evidence to suggest increasing the minimum wage will reduce the number of jobs or cut workers’ hours to an appreciable degree.
He said labor costs are not a big part of businesses in the “low wage sector.”
Dube said that if the minimum wage is increased, prices of products or goods likely will increase one or two cents on the dollar, but not much more than that.
Rep. Bill Aman, R-South Windsor, said he’s very concerned an increase in the minimum wage would cut into profit margins because it’s likely these businesses, which he believes operate on smaller margins, will go under if you cut their profit margins in half.
Advocate groups like CT Voices for Children believe increasing the minimum wage to $9.75 per hour by 2013 will impact 226,000 workers because those who earn near minimum wage would also receive raises.
Aman asked about how many workers who earn slightly above the minimum wage will be coming in to ask their bosses for a raise if this bill passes.
Dube said it’s likely those who make about $1 over the minimum wage would seek an increase, but he was doubtful it would trickle any further up than those workers just above minimum wage earners.
Currently, 17 states have higher minimum wages than the federal minimum of $7.25 per hour.
Oregon, Washington, and Vermont have a higher minimum wage than Connecticut’s. Washington’s is the highest at $9.04 an hour.
The minimum wage has been increased 12 times in the last 20 years, but if it was keeping pace with inflation it would be closer to $10.40 per hour, Dube said.
House Speaker Chris Donovan, who put forth the proposed bill, said there are 106,000 people in Connecticut making minimum wage and 80 percent are over the age of 20. Based on the current minimum wage of $8.25 per hour, a person working 40 hours a week would make a little more than $17,000 a year, which is “not enough to escape poverty in our state,” he added.
“I think it’s an important time as always to look after our lower wage workers,” Donovan said. “We should adjust the minimum wage for those lowest paid in our society so they can have a decent wage and can contribute to our economy as well.”
Donovan’s bill would increase the minimum hourly wage from $8.25 to $9 on July 1 of this year and then raise it to $9.75 in January. After that, the wage would rise automatically with the Consumer Price Index.
Gov. Dannel P. Malloy said he would review the testimony from the public hearing, but wasn’t ready to endorse or dismiss the idea of increasing the minimum wage. While he supports the minimum wage, he thinks the issue of increasing it needs more study.
“I’m also a supporter of benchmarking and understanding what our competition is doing,” Malloy said. By competition, he’s talking about surrounding states.
He said he’s aware this is the first year of the Earned Income Tax Credit and a paid sick days law, both of which impact the population Democrats are seeking to help with a proposal to increase the minimum wage.
Tags: minimum wage, tip credit, Phil Barnett, restaurants, labor, Chris Donovan
(5) Comments
posted by: DirtyJobsGUy | February 29, 2012 12:39pm
I hire a great high school girl to do some part-time clerical work at our office. BUT the current minimum wage is higher than I would pay otherwise and I would hire another part time HS kid for the delta. Raising the mimimum wage is really tough on teenagers.
I also tip generously as I learned the value of tips as a high school pizza delivery guy ages ago. However, if these idiots in Hartford want to turn this into a Euro style service included, my tips will decline accordingly. Yep, Speaker Donovan knows how to screw things up!
posted by: NOW What? | February 29, 2012 1:24pm
All of the current talk about our minimum wage seems to ignore a VERY real problem. Namely, the chronic unemployment of younger people - teenagers and young adults - that is creating a generation of people who did not have the opportunity to develop positive work skills, work habits and self esteem when they were younger.
Of you readers who are at least 40 years old, how many of you recall having had the opportunity to work at a part time, weekend or summer job as a kid? I’ll bet almost ALL of you. Now think about your kids and/or grandchildren… how many of THEM have had or currently have that same opportunity? I’ll bet *most* have NOT.
This is because when *we* were kids, the minimum wage was low enough to enable both national chains and independent retail businesses to hire us AS kids. REMEMBER - kids and other first-time workers (as well as most developmentally and many psychiatrically disabled individuals as well) are simply not as productive as older and more experienced workers are. When the minimum wage was low businesses were able to afford to hire them in greater numbers than they can now, which compensated for their individual lower productivity. For example, each cash register station in every supermarket had an older teen or young adult working as a cashier and a younger or less capable bagger as well. Restaurants used teens for bussing and dishwashing in plentiful numbers. Etc.But now, businesses simply can’t afford to hire them in the numbers that they did years ago because the wages they have to start them out at are genuinely too high. So businesses are now FORCED to employ fewer people, with the result that older adults now wind up having to be hired at even our current minimum wage level - locking teens and young adults etc. out of the market altogether and forcing even many experienced adults to work for $9 or $10/hour (IF they can even get a job).
This is a SERIOUS social problem that will cause us nothing but problems for at least the next two generations. There are thousands upon thousands of kids, young adults and even many disabled folks who would LOVE to have a job - even just a part time job at $6-$7 per hour, if such jobs were to once again be made available to them. But that’s currently IMPOSSIBLE, and it will REMAIN impossible especially with a minimum wage even higher than it currently is.
I’m a liberal on almost all issues. But I’m really serious when I say we *need* to keep our minimum wage at what it’s at now, and lower it DRAMATICALLY specifically regarding the employment of 16-21 year olds. I honestly can not think of any greater gift that we could give to our children and grandchildren.
posted by: Reasonable | February 29, 2012 9:17pm
Chris Donovan is definately not a small business owner, and is oblivious to the problems they are facing—to try to survive. However, like Gov. Malloy, Donovan is a politician, who do not necessarily have the grasp on the best solutions.
posted by: sWamp-ass | March 1, 2012 4:06pm
The underlying presumption of all this is that more government intervention is always the best solution. Did anyone ever stop and think that maybe it’s the worst solution? No, Malloy, like 99% of his ilk, looks for every excuse to layer on more laws, increase his power and in turn, take away more and more freedom from ordinary citizens and business owners. Isn’t the right to own and operate your own business how you see fit nothing more than the natural right of all individuals to make voluntary contracts with others???
