Popular January 12, 2021 5 min read

What the New Minimum Wage Adjustment Means for Your Restaurant

What the New Minimum Wage Adjustment Means for Your Restaurant

Everyone wants to earn a fair wage, and everyone wants to pay a fair wage. But the current economic situation and the public health crisis have been very hard on the restaurant industry. After all, when restaurants close to indoor business, there is less revenue coming in. This makes it increasingly difficult to pay staff.

The new minimum wage adjustment came into reality around New Year’s Day in 20 states, and many others will implement the change later this year. This change will increase the minimum hourly wage to $15. It’s new territory for many small business owners, and you’re not alone in your concern about the impact on your restaurant.

Here’s what the adjustment could mean for your business. Read the whole article for tips on how to mitigate the financial impact and educate your customers about the new change.

What will the new minimum wage look like, and when is it coming?

The federal minimum wage will remain $7.25 per hour, but some states and localities have now raised it to between $10 and $15. Future changes are scheduled for 2021 in many places, including additional minimum wage adjustments as well as cost-of-living adjustments.

Owners will need to raise their staff’s wages to adhere to the new guidelines, even though they are already struggling to retain employees due to the pandemic. It’s not only an increase in the hourly wages, however. Most restaurant owners are also increasing their menu prices to make it possible to keep paying staff, passing on the cost to customers.

The Congressional Budget Office found that boosting the minimum wage to $15 per hour would boost 17 million American workers. However, it also found that about 1.3 million workers would lose their jobs.

Why the push for the wage if it’s a bad economy?

Workers have been pushing for a minimum wage increase for years, but the fight gained serious momentum this year in light of the coronavirus pandemic. In 2020, minimum wage workers transformed into frontline workers, delivering key goods and services at a very low wage with incredibly high risk of exposure to the virus.

The challenge, as always, is that small businesses will bear the brunt of this change. If you’re the owner of a small restaurant business, then you know how hard it can be to protect your bottom line, even in a good economy. Large, multi-chain food businesses will have a much easier time increasing the wages of hourly worker wages than you will.

Nevertheless, the change is here. Eventually, the goal for the wage adjustment is to boost the economy by paying people a livable wage, so they have more to spend. Unfortunately, that will hit small business owners hard. It may take some time and a bumpy road to get to the other side, but hopefully, the change will be better for employees and owners alike.

How can I deal with this change?

It’s time to face the music. A good first step is to empathize with your workers. Save your business owner spiel for later, and start talking with your team about the coming wage adjustment. It’s important to let your employees know that you appreciate their work and support the transition towards a livable wage.

At this point, it can be helpful to share additional information with your staff. Talk about the bottom line and explain the financial situation of your specific restaurant. Share numbers and discuss the options you’re considering. It won’t be an “us-versus-them” conversation if you can show your team that the money just isn’t there. Now it’s time to review your options.

You can let staff go. You can raise prices, like 71% of restaurants have done. You can try to implement a solution that does both. Either way, you’ll need to get your employees on board. You will also need to educate your customers and make careful calculations to retain business instead of losing it.

One strategy: utilize tip distribution

With menu prices increasing, tip prices should increase, too. Luckily, studies show that customers like to be in control of how much they tip, rather than being subjected to a general service fee. This means you should turn to customers to help get through this phase.

Invest in a restaurant tip automatic technology that will make the customer experience even more seamless. Do everything possible to make their transaction delightful. A tip distribution software can streamline tip allocation and help keep your customers and employees happy. Tip sharing and tip pooling should be carefully evaluated so that all team members feel confident they’ll get what they deserve.

Automatic tip sharing saves you time so that your workers can focus on productivity that actually generates more revenue (rather than scratching out an equation for how to calculate tips).

Most importantly, you need to retain your workers in the face of this minimum wage adjustment. Demonstrate your commitment to transparency and show them you know how to fairly distribute tips with a tip sharing software or tip pooling software. Make it easy for customers and staff alike to enjoy great service. It’s going to be a challenge, but the right tools can help see you through to the other side.

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