When do you decide to give an employee a raise? “When
an employee performs beyond expectations” or “when an employee
takes on new responsibilities” would both be good answers. Do you think
it is fair to be told by an outsider when to give an employee a raise? When
the minimum wage goes up, that is exactly what happens. But does an increase
in the minimum wage rate help low income employees? I’m not convinced
that it does. To offset the increased operating costs caused by an increase
in labor costs, restaurateurs can either reduce their number of total employees
or reduce the amount of total hours worked. Either of these reactions will
offset any overall benefit to employees. Another alternative is to absorb the
increase to labor costs and offset it with an increase in prices. Servers in
New York State earning the minimum wage will be getting a raise on January
1, 2007 thanks to your elected government officials. This will be the third
raise in the last three years. The current minimum wage in New York for a tipped
employee in the food service industry, earning at least $2.40 in tips per hour,
is $4.35. It was $3.85 prior to January 1, 2006 and $3.50 prior to January
1, 2005. (In case you haven’t noticed, your labor costs have increased
substantially!) If you had 30 servers working 20 hours per week at minimum
wage on December 31, 2004 your direct labor cost was $2,100 per week. Those
same servers working after January 1, 2007, when the hourly rate goes to $4.60,
are going to cost you $2,760 or $34,320 more annually! These individuals I
am referring to, in some establishments, are making upwards of $30 per hour
in tips over and above their wages. It is true that the minimum wage for non-tipped
employees has also gone up. However, this has had little or no impact because
the marketplace has set a standard wage which is higher then the minimum. As
of January 1, 2007, the minimum wage for non-tipped employees is increasing
to $7.15. Starting wages for non-tipped employees in New York, for the most
part, exceed that.
There is a glimmer of hope for restaurants. At the time this article was written,
there was a court case pending trying to block the proposed minimum wage increase
for tipped employees. However, assuming the increase goes into effect as scheduled,
it should be implemented based on when an employee works as opposed to when
he is paid. This will create a strange situation if you pay your employee in
2007 for hours worked in 2006. Your employee will have wages reported on his
2007 W2 which are paid at the lower 2006 rate.
Restaurants in New York’s neighboring states have similar issues with
minimum wage. New Jersey increased their minimum on October 1, 2006 to $4.29
for tipped employees and $7.15 for non-tipped employees. However, New Jersey
takes the position that their minimum wage for tipped employees is merely a
guideline as long as tips declared per hour plus wages equal at least $7.15.
This means that as long as an employee declares at least $5.02 per hour in
tips, the federal minimum wage for tipped employees, $2.13, can be used. Connecticut
is increasing its minimum on January 1, 2007 to $5.41 and $7.03 for tipped
servers and bartenders respectively, and $7.65 for non-tipped employees.
I’ve spoken about available credits in previous articles and there is
one which is tied into the minimum wage in New York. As minimum wage goes up
the credit you can take for offering a meal to your employees goes up also.
As of January 1, 2007, the meal credit for a tipped employee goes up to $2.10
per meal. Based on the example used above, you could save over $13,000 (or
rather get back some of the added cost). If you have not been taking meal credits
in the past, this may be the time to start.
Michael Busch is President of Payroll Computing Services. PCS is a payroll
service provider and consultant that specializes in the restaurant industry.
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