Federal wage hike an afterthought for many operators

Federal wage hike an afterthought for many operators

Late last month as the federal minimum-wage increase approached, the jump to a new hourly rate of to $7.25 appeared to be ruffling few feathers.

While none of several operators interviewed cheered the 11-percent increase over the previous minimum wage of $6.55 per hour, most reported that they are already paying rates higher than what will soon be the new federal standard.

“Our utility people make $9.10 an hour, so the increase doesn’t hurt us,” said Neal Gilder, co-owner of Arbor Ridge Vine & Grill [3] in Crestwood, Ky. “We don’t have anyone who’s just a straight dishwasher; they do a lot of food prep, too. So I have to pay them more if I want good workers.”

Michael Nolan said just a few members of his sanitation staff will benefit from the pay increase, while nearly everyone else at Sam & Louie’s New York Pizzeria [4] is paid much more.

“On average our kitchen staff gets eight to 10 dollars an hour, and some get 11,” said Nolan, manager of franchise operations for the 15-unit Omaha, Neb.-based chain. “Servers aren’t an issue since they’re tipped employees.”

At four-unit Mark’s Feed Store [5], dishwashers make at least $8 an hour, while kitchen help gets as much as $2 more than that on the hour.

“We really haven’t even thought about the increase since it won’t affect what we’re already paying,” said Mary Stebbins, director of operations for the Louisville, Ky.-based barbecue chain. “We want good employees, and you have to pay more than minimum wage to get them.”

Same story in Norcross, Ga., home to Steak-Out [6], a 50-unit dinner delivery chain. Aftan Romanczak, the company’s director of research and development, said the chain’s franchisees have told headquarters most employee pay rates already exceed the federal minimum.

“In terms of staff, our operations are really pretty simple, unlike a regular restaurant,” Romanczak said. Cooks and delivery drivers multitask by taking on phone duties, which necessitates higher-than-average wages.

“Everyone in the system already has a pretty competitive wage, so it doesn’t affect us much,” he said.

Romanczak said peers he has talked to at other restaurants also pay well above the federal minimum, especially in California, where the state minimum is $8 per hour.

But that doesn’t mean operators are any less focused on controlling labor costs, especially in the face of soft sales. Two years ago, Sam & Louie’s operators got serious about using their POS system’s labor-tracking tools, and costs plummeted, Nolan said.

“You hear the POS guys say it’ll pay for itself in no time, but we didn’t believe that,” he said. “We run 23 [percent] to 24 percent labor in our corporate stores, and that’s 10 percent less than what it was. That system, honest to God, paid for itself on labor alone.”

Nolan said his system reports labor as a percentage of sales in real-time, and that all employees are trained to monitor it.

“If it’s slow, they’ll look at it and know somebody needs to be sent home,” he said. “They just poke a button to see where we’re at for labor, and then make a decision.”

Romanczak said Steak-Out’s operators also rely on their POS system’s tracking tools to monitor costs, but he advises they also use their instincts when cutting staff.

“The tools we have now are just incredible, things I wish we had 30 years ago when I got started,” he said. “But a lot of good decision making comes from experience and knowing when to cut.”

While operators might not cut labor in the face of wage increases, National Restaurant Association [7] research shows they’ll likely make cuts in other areas. In 2008, 1,300 members in the 18 states that followed the federal minimum wage at that time were asked what changes they made when the federal minimum was raised in 2007. More than half increased menu prices, while others trimmed employee shifts and reduced overall staff sizes.

Romanczak said raising menu prices is highly risky in cost-conscious times, as is cutting labor too deeply, because customers value good service more than ever.

“I don’t know what it is, but customers are less forgiving now than ever when it comes to that,” he said. “So when you have no room for error—if you cut labor and hurt service, you’re cutting your nose off to spite your face.”