How to raise the wage

Los Angeles Times - - OPINION - By Bill Chait Bill Chait is a restau­ra­teur in Los An­ge­les.

Ipur­chased my first restau­rant in 1985, and I am cur­rently the man­ag­ing part­ner of 11 restau­rants in Los An­ge­les, in­clud­ing Bes­tia, Republique, Bar­rel and Ashes, Red­bird and Pet­ty­cash. Like ev­ery­one in the ser­vice in­dus­try, I have a keen in­ter­est in the de­bate over whether and how to raise the min­i­mum wage in the city of Los An­ge­les.

My chef part­ners and I, along with about 200 other ca­sual dining restau­rant op­er­a­tors, sup­port the pro­pos­als to raise the Los An­ge­les min­i­mum wage, specif­i­cally one put for­ward by Mayor Eric Garcetti. How­ever, our sup­port is sub­ject to two very im­por­tant caveats: The law must in­clude the “to­tal com­pen­sa­tion” con­cept and a longer phase-in pe­riod.

To un­der­stand our con­cerns, let me first ex­plain the pay struc­ture in our restau­rants.

In ca­sual dining, typ­i­cally 50% to 60% of the em­ploy­ees are front-of-the-house em­ploy­ees (servers, run­ners, ex­pe­diters, bus peo­ple and hosts). The rest are kitchen staff.

In a busy restau­rant, the av­er­age tip is about 20% to 22% of rev­enue. This means an estab­lish­ment with to­tal an­nual rev­enue of $10 mil­lion has about $2 mil­lion in gra­tu­ities that can be shared an­nu­ally among em­ploy­ees.

What many peo­ple don’t re­al­ize is that all of that tip money goes only to front-ofthe-house em­ploy­ees. None of it can be shared with the kitchen staff, ac­cord­ing to Cal­i­for­nia law.

The front-of-the-house em­ploy­ees in our group of restau­rants are paid min­i­mum wage by the restau­rant. But when that is sup­ple­mented with tips, they ac­tu­ally make $30 to $60 per hour. The hourly kitchen staff makes $10 to $20 per hour, all paid by the restau­rant.

Ev­ery­one in the in­dus­try un­der­stands that tips are fun­da­men­tally wages; so does the In­ter­nal Rev­enue Ser­vice. More of­ten than not, the em­ployer and em­ployee must pay tax on th­ese “sup­ple­men­tal wages.”

To ig­nore tips in a min­i­mum wage dis­cus­sion is, there­fore, disin­gen­u­ous. It would also be dis­as­trous to the econ­omy of our in­dus­try. Even if we raise prices, restau­rants’ la­bor costs would dras­ti­cally in­crease, forc­ing some es­tab­lish­ments to close and oth­ers to change to op­er­a­tions that need fewer em­ploy­ees.

The pro­posed city min­i­mum wage in­crease is to ei­ther $13.25 or $15.25 per hour, depend­ing on which plan is adopted. That is a 47% to 69% in­crease from the cur­rent state min­i­mum of $9. Over­all la­bor costs in a restau­rant would go up by al­most the same per­cent­age, cut­ting deeply into prof­its and, given the tight mar­gins in our busi­ness, quite pos­si­bly re­sult­ing in a net loss.

If, how­ever, the city adopted the to­tal com­pen­sa­tion con­cept, I could see my way to main­tain­ing a suc­cess­ful busi­ness.

Un­der that sys­tem, tips would count to­ward the new min­i­mum wage — whether it’s $13.25 or $15.25 — for em­ploy­ees who share in tips. If for some rea­son base pay plus tips didn’t add up to the re­quired amount, em­ploy­ers would of course have to make up the dif­fer­ence.

La­bor costs would stay about the same for tipped work­ers, but still rise over­all, be­cause kitchen em­ploy­ees mak­ing min­i­mum wage would get a boost to the new stan­dard. That makes sense; it’s the kitchen staff that’s most in need of a raise.

For restau­rants in the ca­sual dining sec­tor, the to­tal com­pen­sa­tion con­cept is ab­so­lutely es­sen­tial. Any min­i­mum wage plan that does not in­clude this el­e­ment would cause many restau­rants to go out of busi­ness or move into the quick­ser­vice cat­e­gory, elim­i­nat­ing front-of-the-house em­ploy­ees.

As it hap­pens, to­tal com­pen­sa­tion lan­guage is cen­tral to the new Seat­tle law that raises the min­i­mum wage to $15 over three to four years for large com­pa­nies and five to seven years for small com­pa­nies.

And as in Seat­tle, it is vi­tal that busi­nesses have a long im­ple­men­ta­tion pe­riod. Garcetti’s plan calls for the min­i­mum wage to reach $13.25 by 2017. Other pro­pos­als talk of reach­ing $15.25 by 2019. Em­ploy­ers need ad­di­tional time to al­low for a more grad­ual in­crease, es­pe­cially if prices must be raised to off­set the higher wage. A five-to-seven-year time frame, as in Seat­tle, would be rea­son­able.

Th­ese two fixes are what’s needed to make the min­i­mum wage plan fair to ev­ery­one.

Add tips to the cal­cu­la­tion for a fairer ver­sion of a new min­i­mum.

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