The Morning Report
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This is Matt Gordon.
Gordon is getting worried.
Gordon is the owner and chef of Urban Solace and Sea & Smoke, both restaurants inside the limits of the city of San Diego. He has another restaurant in Encinitas.
And he’s watching this news about San Diego closely.
But Gordon is not overly worried about what that might mean for the lowest-paid employees at his restaurants.
What concerns him is what a dramatic minimum wage hike will mean for some of his restaurants’ highest paid employees: the servers who collect tips.
Right now, the minimum wage in California is $8 an hour. It’s set to go up in July to $9 an hour and $10 by 2016. Gordon and his counterparts seem ready for that.
But Council President Todd Gloria, and most of his colleagues, don’t think $10 an hour will be nearly enough. They’re on the cusp of setting the minimum wage at $13.09 per hour.
Yes, this will have some effect on 43 of Gordon’s employees, who work in the kitchen and who earn close to the proposed minimum wage or below it. But in Gordon’s two San Diego restaurants, he has 42 servers who receive tips (we’re not counting the 11 hosts here). Every one of them must get the minimum wage, and they earn much more in tips on top of that. A dramatic increase in the minimum wage will mean a dramatic pay hike for them.
Gloria’s current proposal to increase the minimum wage does not allow restaurants or others to count tips as wages, no matter how much they actually make with tips.
If it becomes law, Gordon is going to have to find an extra $327,000 a year to pay these servers each year as the minimum wage increases from $8 to $13.09 over the next few years. That’s not counting the proportional increase in worker’s comp that will come as well, which is a portion of payroll. And it doesn’t count the impact the minimum wage increase might have on staff in the kitchen who might expect a certain amount more than the minimum wage.
“Local operators will struggle, though likely survive,” he told me in an email. “But it will put less of a strain on national operators and chains, who have more buying power, don’t buy local and can offset their margins from better margins in other markets.”
Not Just a Restaurant Owner’s Worry
Brigette Browning is also worried, but for much different reasons. She’s the president of UNITE HERE, the hotel and food service workers union.
“We believe that if employers have to give tipped employees almost a third more than they’re getting, it’s going to jeopardize our ability to get employer-provided health care,” she said.
And her counterparts don’t seem to get it, she said.
“The Labor Council doesn’t understand tipped employees,” Browning said.
With that, a dilemma has arisen in the effort to increase the minimum wage inside the city of San Diego: How, exactly, do you handle its impact on tipped servers and bartenders, who may not be rich but who often make much more than the minimum wage?
“I don’t think anyone in the restaurant business has any problem with raising the minimum wage for backhouse employees. It’s the tipped employees who will make it difficult to spread wealth to everyone else,” said George Hauer, owner of George’s at the Cove. (Full disclosure: Hauer is a Voice of San Diego donor.)
Hauer said that 100 percent of the state’s minimum wage increase to $9 an hour in July will go to his tipped employees, who already make much more. The increase will not impact staff working in the kitchen, as they already make more.
The restaurant owners I spoke with said such increases for tipped employees are setting up even more tensions between them and the non-tipped employees who work in kitchens.
‘Not Everyone Works at Ruth’s Chris’
“Not everyone works at Ruth’s Chris Steak House,” said Robert Nothoff, a research and policy analyst at the Center for Policy Initiatives. “They might work the Tuesday night graveyard shift at IHOP.”
Nothoff points to this data from the Economic Development Department, which shows that the median hourly wage for waiters and waitresses is $8.95 an hour, even counting tips.
In fact, that report shows only massage therapists and hairdressers have a total median hourly income above the $13.09 Gloria is proposing.
Nothoff says that, for servers at lower-priced restaurants, there’s no guarantee they’ll make it to the minimum wage without the minimum wage itself.
Seattle recently increased its minimum wage to $15 an hour but gave restaurants five years to adjust. (Here’s how the increase happened without a fight.) During those five years in Seattle, tips can count toward the minimum wage. But after five years, it’s the same for all employees throughout the city.
Even that sort of agreement doesn’t look possible here, said Katie Keach, Gloria’s spokeswoman.
Keach and other supporters of a minimum wage hike point to interpretations of California law that claim a two-tiered wage system, where tipped workers can have a lower guaranteed wage, are plainly illegal because of California Code 351. Here’s the relevant text:
Gloria is “open to all points,” Keach said. “Just knowing a two-tiered system is an option is something we’re trying to figure out.”
If they figure out it’s not an option, Gloria will still go forward, she said.
At first, Gloria was going to put the proposal on the November ballot. But now the City Council has asked the city attorney whether it can just impose it without voter approval. The proposal is going back to the City Council’s economic committee June 11. A competing measure with large loopholes for restaurants and small businesses is trying to make its way to the ballot.
I requested comment from the Labor Council but didn’t hear back.
It’s worth noting that it is easier than ever to see how much tipped employees make.
Susie Baumann, owner of the Bali Hai restaurant, told me 95 percent of customers pay with credit cards and 95 percent of them leave tips on their cards as well.
Baumann says she tracks this and uses it to pay payroll taxes for employees based on their total compensation, including tips. So the Internal Revenue Service also sees the data, limiting the chances tipped employees have to hide some of their compensation. If they don’t count their cash, auditors might wonder why it doesn’t correspond to what they were receiving in tips through a credit card, for example.
The Bali Hai has 75 employees, 45 of whom are tipped servers. They are paid a base of minimum wage and, with tips, make an average of $36 an hour. None of them make less than $24 an hour, Baumann told me.
If each of them got a $5 per hour increase immediately, not only would prices at the restaurant go up, but it would make it harder to pay back house staff more.
“If there was a way to consider total compensation in minimum wage laws, I think we would be able to start sending more money to the heart of the house,” Baumann said. (“Heart of the house” is her term for “back house” — the jargon used to refer to kitchen staff.)
Most of the restaurateurs with whom I spoke were generally opposed to major increases in the minimum wage. Gordon said $13.09 is more than he pays entry-level cooks and is about what he pays cooks with a couple years of experience.
“I have always seen restaurants as one of the few industries that anyone can work their way up in with little education and a lot of drive,” he said in an email.
“I am one of those people who started as a dishwasher and worked through every position in the kitchen and into management, then ownership. Those opportunities would shrink dramatically,” he said.
Gordon, however, will not say his restaurants will close.
Clarification: The minimum wage increase Gloria’s proposing would not take effect instantly, so I’ve removed the word “immediately” from my estimate of the payroll increase Gordon would face to better reflect the proposal.