"Over a period of just 105 weeks (December 12, 2016 – January 9, 2019) the minimum wage in New York City will jump 135% from $9 to $15."
The debate over increasing the minimum wage has been a contentious one throughout the past year. If you own or manage a restaurant or bar, it will likely continue to be one of your primary business concerns in 2017. Yet, it may surprise you to learn that for most of your servers and bartenders, changing the tipping policy may do more to shake their feelings of financial security than not receiving a government-mandated pay increase.
To see how businesses and employees are responding to this changing landscape, we conducted a proprietary survey of almost 800 chefs, servers, bartenders and other restaurant staff, the vast majority of whom are based in New York City. We wanted to gauge how a minimum wage increase, fluctuations in their work schedules, and the trend of implementing a no-tipping policy which restaurants are increasingly adopting would affect their job satisfaction levels. Interestingly, the questions related to tipping policies elicited the strongest, and most uniform, responses.
The impact of these wage increases will be greater in New York City than anywhere else simply by the sheer number of restaurants and staff it takes to keep the ovens on, food on the plates and diners happy. Wage increases in New York City are the most aggressive in terms of size and speed. Over a period of just 105 weeks (December 12, 2016 – January 9, 2019) the minimum wage in New York City will jump 135% from $9 to $15.
So we first asked respondents about whether a minimum wage increase would have a significant impact on their paychecks. You might expect 100 percent of them to say “Yes!”
In fact, the responses were nearly split down the middle. 51 percent indicated “no” while 49 percent answered “yes.” Dive a little deeper into the survey’s findings, and you’ll learn why.
But they were much more single-minded when it came to potential changes to their employers’ tipping policies:
· 70 percent confirmed a change would compel them to look for a second job.
· 63 percent said a "no-tipping policy" would deter them from applying for a job at a restaurant.
Employees and job seekers gave us some very enlightening and interesting answers when we asked them specifically how has the increased minimum wage changed their job seeking strategy?
“It doesn't affect me much as I am a tipped employee, so I never see my paycheck as it is. If people stopped tipping because of wage increases, then I would have a SERIOUS problem!”
“I feel it will make it more competitive, especially amongst small business owners. A well trained, professional staff is hard to come by nowadays.”
“It has caused me to look for positions that are less experienced because entry-level postings will have higher pay than it used to be.”
Interestingly enough, while a change in tipping policy is of great concern to employees, a concurrent survey we conducted of owners/operators found that tipping policies are more than likely to stay in place. 85% of respondents stated that the increase in minimum wage would not affect their tipping policies.
However, nearly 50% of respondents did say that the increase in wages would force them to reduce staff hours. That decision will likely carry serious repercussions for both sides: 79% of the employees we surveyed said they will have to look for a second job if their hours are reduced.
55% of owners/operators told us that they would have to raise menu prices now to offset the wage increases, with a further 66% raising prices over the coming six months. Of those owners/operators who said they would have to raise menu prices, 40% said they would raise prices by 5% while 30% said they would only raise prices by two percent. 89% said these price rises would have a negative or neutral impact.
If we take a thirty-thousand-foot view of this data, it shows us that the industry is at a crossroads. Employees are more concerned about their tips and hours than wages. Yet employers are not ready to join the trend of changing tipping policies and are instead more likely to cut hours.
The question becomes how do owners/operators manage their costs, retain and hire the best talent all while keeping their entire staff happy?
A key factor in your decision-making process should be just how expensive a high employee turnover rate can be. In 2016, we built a model that calculated turnover costs based on the data we were given by Harri clients across fine dining, casual dining, and quick service restaurants. This data shows us just how high the cost of finding new talent across an organization can be:
Of course, turnover is unavoidable in our industry, which the Bureau of Labor Statistics ranks among the highest along with construction, retail and customer service. However, owners and operators are not taking advantage of new technologies and innovations as 52% of respondents told us they have not considered using technology to offset increased labor costs. There are many solutions available, one of which is Harri’s Total Talent Solution, that can significantly reduce those costs by cutting hiring time up to nearly 70 percent and saving up to nearly 50 percent in hiring costs. But it’s also important to dedicate your time and energy to retaining your current employees. After all, the longer employees are with you, the more valuable they become.
Another major cost center is scheduling of the most overlooked ways for owners/operators to avoid turnover is clearer communication between owners/operators and employees. While it certainly is better for employees to have hours reduced rather than having their position eliminated altogether, this shows us it is of utmost importance for owners and operators to get a handle on their scheduling as well as their team communication.
Owners/operators who do not change their tipping policies are more likely to reduce staff hours. While this might seem like a simple process, getting schedules wrong will cost more than what you could save by getting them right. Analyzing their most crucial shifts, identifying the strongest members of their staff, and ensure they’re on the floor during those times is time-consuming and costly. That’s why we created Harri TeamLive which significantly reduces labor costs by managing schedules more intelligently, tying schedules to historical performance and business intelligence, and offering seamless team communication amongst managers, line-level staff and even overseeing corporate team members. All built on a mobile and millennial-minded platform.
This survey is a first look how the lives and bottom lines of restaurant operators, managers and employees will significantly change in 2017. That’s why we’re going to field this same survey multiple times throughout the year to see how the changes in wages and tipping policies affect the job security of employees, the prospects of job seekers and the balance sheets of owners and operators.
In the meantime, we’d love to hear your thoughts on whether you’re considering implementing any changes to your tipping policies, how increased wages are affecting you, or if you’re an owner/operator, how you’re dealing with wage increases this year. Please post your comments and questions below.