News Restaurant Opportunity Center

Published on February 5th, 2016 | by Reporters Desk

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Restaurateurs Serve Up Minimum Wage Cost

A member of the Restaurant Opportunity Center Los Angeles holds up a sign in Spanish that reads: “I Work Hard, I Deserve $15.” Photo courtesy of Raise the Wage Coalition
By Zamná Ávila, Assistant Editor

By 2021, Los Angeles County and two of its largest cities are set to raise their minimum wage to $15 an hour. Though the move is widely supported, business owners in the restaurant and hospitality industries continue to fret over the cost of doing business.

“Across the board, this is devastating to all businesses in California,” claimed Scott DiDomenico, general manager at J. Trani’s Ristorante in San Pedro. “It’s based on good intention but the results are tragic.”

Right off the bat, some restaurants are going to cut their staff to be able to maintain payroll, DiDomenico said.

Most restaurants are operating below a 6 percent net, which doesn’t mean they are inefficient. That’s just the state of the industry, DiDomenico said.

Rigoberto Pérez, who works as a server in Long Beach and in Orange County, does not believe that to be true. He said he’s worked as a manager, assistant manager and relief manager for different companies and he would notice the companies’ earnings.

“It’s higher than a clothing store or cosmetics, because the earnings are at 300 percent,” Pérez, 34, said. “It’s one of the chains that grows more rapidly because the cost of labor is so low. They take the earnings. The state demands the minimum.”

Higher wages will impact more than just the bottom line, DiDomenico said.

“There are a lot of entry-level people in those positions and it’s hard to pay those people at that minimum wage ($15 an hour),” he said. “There’s got to be an incentive. Do a good job and you’ll transition.”

Though businesses in the hospitality industry will have to make much greater adjustments, a 2013 Economic Roundtable study found that there would be a net increase in jobs with the minimum wage increase. Personal service establishments, hotels and restaurants will need to reallocate about 14 percent of their revenue to raise employee wages the study stated.

In June 2015, the Los Angeles City Council voted to gradually raise the minimum wage to $15 an hour by July 2020. In September 2015, the Los Angeles County Board of Supervisors mirrored the city’s vote for workers in unincorporated areas and county employees. Employers with fewer than 25 employees have an additional year to reach the $15 an hour raise. This past January, the Long Beach City Council followed with a minimum wage increase path of its own. The city would require most workers to earn at least $13 by 2019, with the option of raising wages to $15 by 2021. Nonprofits and businesses with fewer than 25 employees would have a one-year delay.

As far as restaurants are concerned, they “would not be treated differently than any other business,” said Long Beach City Attorney Charles Parkin. “They would be required to pay the local minimum wage.

Some restaurants have looked into options that would make the wage increase more digestible, such as lobbying for a “tip credit.” A tip credit would create a lower minimum wage for tipped employees, where tips would be counted toward the minimum wage requirement.

However, California Labor Code 351 clearly states:

No employer or agent shall collect, take, or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron, or deduct any amount from wages due an employee on account of a gratuity, or require an employee to credit the amount, or any part thereof, of a gratuity against and as a part of the wages due the employee from the employer. Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for.

“Tips do not make part of your wages,” said Manuel Villanueva of the Restaurant Opportunity Center. “This is illegal. You cannot touch people’s hard earned money. This is a profession we learn out of necessity and we do our jobs with pride. We want to bring dignity and respect to the profession we serve.”

While some people question why a waiter should get paid equally or more (including tips) than a sous chef, Pérez, who is married, has a daughter and a mortgage, believes he not only deserves a living minimum wage but his tips. He says he considers his job to be profession for which he has prepared for and is no less valuable than that of a chef or an office worker.

“I am a professional waiter,” said Pérez, listing specialties in culinary, drinks and banquets. “What makes you think that what I do has less value? I have 15 years experience as a waiter and I’ve prepared myself for what I have.”

What people don’t consider is how much waiters are taxed by the government, how waiters hardly ever get benefits such vacations and how some don’t even get paid a minimum wage. Moreover, after the Obamacare passed companies reduced the amount of hours allowed for waiters and bartenders, so that employers would be exempt from providing benefits, Pérez said

“I bet you there isn’t any company that has full time servers or front staff,” Pérez said.

In the end, what he calls, “front house” employees only supplement their income with their tips, which varies from customer to customer.

“Sometimes people will deprive you by not giving you tips that you deserve because they think that you are getting rich,” Pérez said.

Yet, he continues doing this job because he enjoys his profession, he said.

“Like an elementary teacher who is not paid sufficiently but fights for his or her profession,” Pérez said. “I love what I do.”

An all-inclusive pricing model is another option restaurant owners are considering. Restaurants would eliminate tipping and the entire cost of dining would be incorporated into the menu.

Service charges are another other option restaurant employers are exploring. In this case, a service charge would be added to the tab for the total due. Instead of the customer gifting a tip based on their discretion and the server’s earned service, the customer would be paying a service charge that belongs to the employer, not the employee, and would be managed directly by the employer. Moreover, implementing a service charge runs the risk of doing away with good service, because it takes away the incentive value for a tip.

“You start guaranteeing … they might not provide that [same] level of service,” DiDomenico said.

For now, J. Trani’s is not considering service charges or doing away with tips, but DiDomenico warns nothing is set in stone.

“Where one goes, the industry goes,” he said. “There is some who are doing away with tips and they are getting a lot of negative [feedback].”

Pérez agrees that taking tips out of the equation would be detrimental to the industry as a whole.

“By taking out tips they are taking [away] the essence of service,” he said. “You are practically destroying the history of the industry…. For those people who do it, it will be counterproductive.”

At this point education is the best solution, said Elise Swanson, president and CEO of the San Pedro Chamber of Commerce.

“We took an opposed position to [Mayor Eric Garcetti’s] minimum wage policy, but it passed,” she said. “Now, what we are doing is making sure our members are educated.”

Several calls to the Long Beach Chamber of Commerce, the California Restaurant Association, the Downtown Long Beach Associates and other local restaurant owners were made without response by the time of production.

 

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