Across the country, Labor unions are organizing workers to increase the minimum wage for fast-food and other employees. Meanwhile, business owners and lobbying groups such as the National Restaurant Association (NRA) argue that an increased minimum wage cold wreak havoc on the economy and lead to an increase in the country’s unemployment rate.
Don Fox, CEO of Firehouse Subs and a vocal opponent of an increased minimum wage, stated the following: “I don’t support raising the national minimum wage. The average restaurant company can’t do that without some very serious price-raising. It… has a ripple effect throughout the entire economy,”
The NRA agrees with Mr. Fox. According to Scott DeFife, executive vice president of policy and government affairs for the NRA, raising the federal minimum wage could cripple the job market. In the words of DeFife, “Labor costs are estimated to be about a third of a typical restaurant’s operating budget. If the minimum wage doubles, that is going to have a significant impact on the price of dining out and food costs, and a decrease in jobs.”
On the other side of the issue, you find pay raise advocates such as Saru Jayaraman, the co¬director of the Restaurant Opportunities Centers United and director of the Food Labor Research Center at the University of California. According to Ms. Jayaraman, “all restaurant workers should receive a stable base wage that allows them to feed themselves and their families… With over 10 million workers,” she continues, “the restaurant industry is one of the largest- and fastest-growing sectors of the United States economy. But it also provides the lowest paying jobs. This is largely because the federal minimum wage for all workers is $7.25, and $2.13 for tipped workers.”
Ms. Jayaraman is not the only pay raise advocate to point out the disparity between quick-service chain profits and corresponding wage increases. According to Tsedeye Gebreselassie, an attorney with the National Employment Law Project, “…the line that they (quick-service restaurants) cannot afford to pay higher wages does not hold water, when you look at the profits they are making…. McDonald’s posted $5.5 billion in profits last year and Yum! Brands had $1.6 billion in profits.” She points to limited-service restaurant chains that pay higher than the national minimum wage and says, “they are doing just fine.”
At the very least, The Great Restaurant Pay Debate has led us to question more deeply how to best determine the ‘sweet spot’ for restaurant pay. As it stands, store operators are largely opposed to minimum wage hikes, believing that they themselves are best suited to determine how much they can pay workers while remaining profitable. On the other side of the debate, labor unions and pay raise advocates argue that the private sector should not be wholly responsible for determining worker compensation, and that state and federal governments have a significant role to play.
Where do you stand on the The Great Restaurant Pay Debate?
1. Wage and Hour Lawsuits Have Restaurant Owners Thinking Outside the Tip Box
Wage and hour lawsuits are currently the largest type of workplace class action lawsuit in the industry. Restaurant owners are being sued for failure to pay tipped employees for overtime, spread-of-hours-pay, “off-the-clock” work, and more.” In light of these lawsuits and government audits, some owners have started eliminating tipping altogether in favor of paying a straight salary to servers.
2. New Local Laws Affect Sick Leave and Pregnancy Accommodations
Beginning April 1, 2014, NYC will be required to cover sick leave. The new law – which passed over the veto of Mayor Michael Bloomberg – will be enforced by New York’s Dept. of Consumer Affairs.
On September 24, 2013, the Pregnant Workers Fairness Act was passed by the NYC Council. The law requires employers with four or more employees to provide accommodation for pregnancy, childbirth and related medical conditions.
3. The Crackdown Begins on Hiring Illegal Workers
According the Wall Street Journal, U.S. Immigration and Customs Enforcement (ICE) has stepped up its audits of companies hiring
undocumented workers – most notably in the restaurant industry.
4. Supervisors Can Share Tips. Sometimes.
The New York State Court of Appeals recently determined that Starbucks’ shift supervisors are entitled to share in baristas’ tip pools. Assistant managers, on the other hand, are not.
5. ObamaCare Making An Impact
The Affordable Care Act (ACA) is now the law and employers must notify employees about healthcare exchanges and federal subsidies for private health plans. In addition, by 2015, employers with 50 “full time employees” must offer health coverage to employees and their dependent children.
Labor and Employment Developments are making this a very busy season for the Restaurant Industry! Stay informed by reading the full report.
Most diners have learned to check their bill closely when it comes time to pay. That’s partly because automatic gratuities are the norm in many restaurants, especially for larger parties. The idea of an automatic gratuity can be problematic for diners – shouldn’t we decide how much to tip our server based on the quality of their service? Now, it’s going to get even more complicated for both servers and restaurant owners.
A new IRS ruling will treat automatic gratuities as service charges, rather than as tips. Servers will no longer have to report these tips as income, as they will show up instead as part of a server’s wages. The money will be subject to payroll tax withholding and it will show up on servers’ subsequent paychecks, rather than be distributed as cash on the day they were received.
For restaurant owners, the new rules present added challenges, most notably in the form of additional accounting hours required to properly keep track of every server’s tips and wages. Larger restaurant groups and those with more sophisticated accounting departments may be able to incorporate the changes with few hiccups, but single operators are certain to rue the day the IRS decided to institute the rule change.
Some restaurants have already begun looking at new ways to handle automatic gratuities in order to avoid accounting headaches. Darden Restaurants, the mega group who owns Red Lobster, Olive Garden, Capital Grille and four more dining concepts, is experimenting with “tip suggestions” in 100 of its restaurants across the country. They intend to make a decision by the end of the year, as the new rule goes into effect on January 1, 2014.
How the restaurant industry reacts to the new ruling remains to be seen. It could potentially be a dramatic change to the profitability of restaurants and leave them open to more legal and staffing challenges. It’s already very clear that the issue of automatic gratuities is a taxing one for servers and restaurant owners alike.
In two recent federal court decisions, restaurants were compelled to pay a total of $2.7 million in back wages and damages after it was ruled that they had violated the Fair Labor Standards Act.
According to the U.S. Justice Department, a Wage and Hour Division investigation found that Qing Xing Inc. had violated the Fair Labor Standards Act’s minimum wage, overtime and recordkeeping provisions during a three-year period. It was found that the restaurant owed 44 employees a total $430,824 in back wages and $524,706 in overtime pay. In a second review it was determined that Super Buffet will be required to pay $259,286 in back wages to 16 workers and $156,975 in overtime to 14 workers.
The court ordered damages are equivalent to the total amount of unpaid wages and overtime pay, demonstrating once again that the best way to avoid the wrath of labor law is to follow it to the letter!
It appears that California is very, very close to raising its minimum wage to $10 per hour. According to California’s Governor. Jerry Brown, the $10 rate is “overdue.”
If the legislation passes, millions would see their hourly pay go from $8 to $9 in July of 2014, and then to $10 in January of 2016.
Though the increase would certainly be significant, it would still leave minimum wage workers far below the poverty level for a family of four. Roughly 2.5 million children in California live in a home with a minimum wage earning parent.
The nation’s federal minimum wage is 7.25 hourly and the state of Washington currently boasts the highest minimum wage in the nation, at $9.19 hourly.
The pay raise follows a nation-wide wave of protests by minimum wage workers and pay raise advocates. Advocates of the pay raise believe it will stimulate the economy, as low income workers spread the wealth due to their increased purchasing power. Business groups, on the other hand, argue that the increases will stall economic growth because it will drain the bank accounts of job creators.
Employers relying on the services of minimum wage employees need to prepare for increases in their costs of doing business. For example, large-scale restaurants like Papa John’s, have already begun to cut hours. Others are considering passing the cost along to the customer. With minimum wage rising, this becomes a slippery slope.
While the ultimate effects of the new legislation remain to be seen, it will be welcome news to the millions of minimum wage pay earners across the nation. And since many of the new jobs being created in today’s economy are minimum wage jobs, it will also undoubtedly have an effect on the nation’s economic recovery.
Ask yourself, would it be fair to have to pay a fee in order to collect your paycheck? While most people would undoubtedly answer “no” to this question, a growing number of American workers claim they have no choice but to do so. These workers receive their pay loaded onto payroll debit cards – a form of payment that offers many advantages, but also some significant pitfalls.
Payroll debit cards are a great solution for unbanked employees. They are secure, convenient, and often less expensive than check cashing services. In addition, they serve as a reliable form of payment in times of crisis (think Hurricane Sandy!) when power outages can hold up both the printing and delivery of traditional paychecks. On the down side, they often involve usage fees for withdrawing cash, viewing printed statements, and for replacing lost or stolen cards.
A recent lawsuit and some critical reports by government regulators contend that those paying the highest fees are also the least able to defend themselves. These workers tend to be paid hourly. Some do not have bank accounts and therefore cannot receive direct deposit checks. Others simply have no choice, as their employers have replaced paper paychecks and even direct deposit with prepaid debit cards. While some companies using payroll debit card programs offer other optional forms of payment, employees may be automatically enrolled in the program and required to fill out a great deal of paperwork in order to opt out.
“Helping workers access their hard-earned paychecks in a quick and reliable way is a good idea,” says Jason Gold, a financial services policy expert at the Progressive Policy Institute, “…But when workers are forced to accept their wages loaded onto debit cards and get dinged for big fees, we have a problem.”
A few of the well-known companies that offer prepaid cards to their workers include: Walgreens, Wal-Mart and Taco Bell.
Card issuers such as Bank of America, Wells Fargo and Citigroup claim the cards are cheaper and more efficient than other forms of payment and their websites boast statistics to support the view.
A calculator on Visa’s Web site estimates that a company with 500 workers could save $21,000 a year by switching from checks to payroll cards. On its web site, Citigroup claims the cards “guarantee pay on time to all employees.”
But, for 27-year old Natalie Gunshannon, a former McDonald’s worker, the process is anything but fair. She claims the franchise owners she worked for refused to deposit her wages into her checking account at a local credit union, requiring her to pay transaction fees that her credit union would not have charged. She has since taken her former employers to court, as have other employees who were enrolled in prepaid debit card programs.
While the benefits of payroll debit cards are difficult to ignore, the potential pitfalls are also quite glaring. For the benefit of workers and business owners alike, those who choose to issue payroll debit cards as a form of payment should be mindful of their fee structures.
Recently, workers at some of the Nation’s largest fast-food chains conducted strikes and walkouts in nearly 60 cities, hoping for significant wage increases. The protestors are asking for an hourly rate of $15 per hour – which is more than double the current federal minimum wage of $7.25. They are also demanding the right to form unions.
Kendall Fells, an organizer with Fast Food Forward, an advocacy group that was responsible for organizing the New York protests, said he expected the event would draw between 800 and 1,000 participants before it wound down at an afternoon rally in Union Square.
Fells said the movement, which has generated national publicity, will continue to grow as it gains momentum across the nation. “We will continue to pressure [restaurant operators] until we get a seat at the table,” he said. “We also expect to bring in more political allies and high profile people.”
Shaniqua Davis, a crew trainer at McDonald’s in New York City currently makes $7.75 an hour, said she was taking part in the protests because, “the workers deserve more money. I have no problems with management, but overall, everyone works hard and deserves better wages.” In addition to calling for higher pay, Davis would like additional health benefits and life insurance.
Because of the restaurant industry’s high turnover rate and the large number of teenage workers, unions have been unsuccessful in the past to organize employees. Nevertheless, some observers say this could end as more unions’ ramp up their efforts to organize foodservice workers to compensate for the decline in union membership over the years.
Restaurant industry insiders say the recent attempts by unions to break into the foodservice industry are self-serving and will only reduce job creation in the industry. The restaurant industry is one of the largest employers in the U.S, employing over 13 million workers.
A $15 hourly wage, would boost annual salaries to about $31,200, and would likely force restaurant owners to pass on higher costs to customers and could ultimately lower foot traffic into restaurants. This presents yet another challenge for restaurants in an already soft market.
McDonald’s Corp. responded to the protests with this statement, “The story promoted by the individuals organizing these events does not provide an accurate picture of what it means to work at McDonald’s. We respect the strong relationship which exists among McDonald’s, our independent operators, and the employees who work in McDonald’s restaurants.”
Scott DeFife, executive vice president of Policy and Government Affairs for the The National Restaurant Association agreed and said “We welcome a national discussion on wages, but it should be based on facts…The fact is only 5 percent of restaurant employees earn the minimum wage and those that do are predominantly working part-time and half are teenagers.”
When you live in a busy city like New York, it’s nearly impossible to keep up with the thousands of restaurants you have to choose from. Luckily, in today’s digital age, you can easily pickup your smart phone and search on websites like Yelp or Trip Advisor, enter a cuisine and neighborhood and you’ll get a list of top reviewed restaurants. But where do those all of those reviews come from? And how do we know they are truthful?
It’s questions like these, that recently caught the attention of the New York Attorney General and prompted a year-long investigation into online reviews, resulting in $350,000 in fines. The investigation revealed that some of the top social media firms in New York have been deceiving restaurant patrons by posting fake reviews for their clients.
Agreements have been reached with 19 companies to stop their deceptive practices and pay the penalties. Both the firms that offer review services and the clients who bought them are at fault. Although the companies were based in New York, many of them employed reviewers in countries like Bangladesh, Philippines and Eastern Europe, where they paid as little as $1 per review.
The bottom line for restaurants is the more positive reviews you have, the better your sales. In a 2011 study conducted by Harvard Business School, a researcher found that restaurants that increased their Yelp ranking by one star raised their revenues by 5 to 9 percent. And on the flip side, negative reviews could affect your restaurant’s reputation and cause a significant drop in sales. Yelp, the popular review site is taking fake review practices very serious by screening out reviews it believes to be false. They even recently sued a California law firm for writing reviews for themselves.
In the case of restaurants, it seems harmless that the outcome of a phony review would be causing someone to have a bad meal. But the ramifications could be much more serious when a consumer is shopping for a service like a lawyer or a doctor based on online reviews. That’s why the law is now taking an aggressive approach to stop this faulty practice. And although the investigation started in New York, similar investigations are sure to follow in other parts of the country.
Main Street Host was one of the 19 firms named in the investigation, who agreed to pay a fine of $43,000 and desist in their review practices that they provided for 30 clients. In the case of the client, U.S. Coachways, a Staten Island charter bus company, had several negative reviews, which the Chief Executive felt was affecting their business. So instead of fixing the problems with buses not showing up and poor service, he hired a team of freelance writers to post positive reviews about the company and essentially bury the bad ones. The company agreed to pay $75,000 in fines and promised to stop writing fake reviews.
As review sites, continue to grow in popularity, you can expect dishonest companies and clients to try to beat the system by posting fake reviews. But it seems in the case of Yelp, that review websites are adjusting their practices to come up with a process to qualify reviews and weed out the fake ones.
Brainstorm Studio is a Long Island social media agency serving restaurants and hospitality groups in the New York Metro area. Contact Brainstorm for a free social media assessment.