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Raising Tipped Wages is Good for Business

A restauranteur explains why increasing the tipped minimum wage is good for business

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by Guest Post on
Apr 26, 2018

For a small-business owner, there is only one sustainable path forward for the restaurant business in New York. No, it does not involve adding poke bowls, avocado toast or jackfruit. It’s one that adopts a One Fair Wage model — the full minimum wage for all restaurant workers, with tips on to.

One Fair Wage is a national effort to bring New York and other states in line with seven states that already pay workers their states’ general minimum wage in addition to their tips. In New York, tipped food-service workers make a subminimum wage ranging from $7.50 to $8.65. They rely on tips to bring their pay up to the state’s general minimum wage, which ranges from $10.40 to $13, depending on the region.

State law requires restaurants to provide supplemental compensation if tips do not meet the actual minimum wage, but that is rarely enforced. I remember the first time I submitted payroll 10 years ago, and discovered that national payroll companies had no procedure to help clients monitor or address the requirement. I spent hours manually adjusting dozens of paychecks every month (with severe legal liability if I made a clerical error). Moreover, the tipped minimum wage has led to regulatory reporting requirements that are onerous for small businesses like mine.

Moving to a standard minimum wage is smart business.

The word sustainable gets thrown around a lot — often without explanation or justification. When people talk about the importance of sustainability in restaurants, they usually focus on food, but a sustainable wage for workers is no less important — and in many ways is a testament to a restaurant’s commitment to sustainability. A standard minimum wage, merit-based and/or seniority-based pay is the norm in most industries, but not in restaurants, where the concept is met with fear and resistance. The tipped minimum wage is a barrier to restaurants working like any other business — one that compensates workers based on merit, capability and experience.

I am proud that higher-than-market wages have made my businesses stronger and our colleagues’ livelihoods more secure in the long term.

While the national average for employee turnover in the hospitality industry is 70 percent a year, ours is less than 10 percent. In the past few years, I can count on two hands the number of employees who have resigned at my East Side restaurant, Amali, to work at another restaurant. Three of them (I will admit with somewhat smug satisfaction) asked for their jobs back (I said yes). According to American Express, employee turnover costs are between 25 percent and 250 percent of the annual pay per exiting employee. Those costs include training (wages for trainee and trainer), ads (sometimes hundreds for one position) and loss of time spent training the employee and related costs (i.e. a server who knows our regulars and what they like to order).

This editorial was written by restauranteur James Mallios.

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