Minimum Wage Q & A
Minimum Wage Q & A
Minimum wage increases will help put more money into your employees’ pockets, which they will in turn spend. Isn’t that good for the economy?
- The premise that employees will have more income is flawed.
- Such a significant increase in the minimum wage is more than employers can absorb, especially in such a short time frame. No jurisdiction has ever increased minimum wage this much and this fast. Restaurants are already dealing with other cost increases due to increased energy, rent, payroll and food costs. This will lead to employees getting fewer hours and eventual layoffs resulting in less, not more, take-home pay.
- Those who earn tips lose not only wages as a result of fewer hours, but also the opportunity to earn tips, which in most cases is more than their wage income. Most servers recognize that these significant minimum wage increases will result in fewer hours, poorer service, and a reduction in their gratuity income.
- The restaurant industry is one of the most labour-intensive, competitive, low-margin industries, with one third of operating expenses going to labour. Restaurants must control their labour costs to remain viable. This means mandated wage increases will result in a combination of increased prices, fewer staff hours, and declining levels of service.
- Additionally, the costs of goods and service will increase and that those who retain their hours and jobs will not spend all of it. For example, some will use the extra earnings to pay off debt. They will also have to spend some of their “extra” earnings on the inflated prices of products and services they already consume.
Why don’t you support giving your employees a living wage?
- Restaurants Canada supports a $15 minimum wage if it is phased in over a reasonable time frame and recognizes there will always be a need for an entry-level wage as articulated below.
- There is an important difference between an entry-level minimum wage and a living wage. Minimum wage is meant to be an entry-level wage for those getting early job experience, and for liquor servers who already earn more than a living wage when you factor in their gratuity income (which is in most cases is much more than their wage income). Once these entry-level employees gain more experience, they receive higher wages.
- The vast majority of those earning minimum wage (70%, according to economist Morley Gunderson) work part time voluntarily. They are supplemental income earners and do not rely on their minimum wage income to live on.
- For the small minority of employees who do rely on minimum wage income, there are better ways to improve their take-home pay, such as increasing the basic income-tax exemption and providing additional training opportunities to improve their skills, which will result in higher wages.
- Most full-time minimum wage earners do not stay on minimum wage very long. As their skills improve and they gain experience their wages increase.
- According to Stats Canada Labour Force data, 47% of minimum wage workers in Ontario’s foodservice industry are under the age of 19, and another 24% are between 20 and 24 years of age. These employees are looking for job experience and supplemental income.
I am not in favour of paying one group of workers less than others. Won’t different minimum wage rates encourage confusion and abuse as employers lay off more experienced full-time employees and hire only those who qualify for a lower minimum wage?
- Different minimum wages work well in a number of Canadian jurisdictions, as well as in European countries and in US cities that are moving toward a general $15 minimum wage. They are simple to understand and enforce. They recognize that some minimum wage employees (liquor servers) already make a living wage. They also provide an incentive to hire young people looking for entry-level job experience.
- Restaurateurs are less inclined to hire and train inexperienced workers without an incentive, especially during tough economic times.
- Experienced workers are more productive, and restaurateurs rely on their experienced employees to provide quality service.
- A liquor server wage allows restaurateurs to pay more and ensure a living wage for hard-to-recruit and retain full-time skilled career workers, such as line cooks.
- 10% of minimum wage earners earn gratuity income on top of their wage income. Their combined income is, in most cases, well above a living wage. A liquor server wage helps non-tipped employees earn higher living wages.
- No other industry in Canada helps more students pay their way through school or works with more young people to develop valuable job skills.
- A youth wage for students helps offset the additional costs associated with hiring inexperienced youth. Research shows it’s these young, inexperienced and unskilled workers who are most hurt by aggressive minimum wage increases.
- Missing out on entry-level work experience when young makes it harder for youth to gain entrance to the job market later in life.
If minimum wage earners don’t make up a large percentage of your employees why can’t you absorb a $15 minimum wage?
- Increasing the minimum wage impacts more than just minimum wage employees. Employers must adjust their payrolls to ensure more experienced workers maintain relative wages. For example, experienced workers currently making $15 per hour will expect to receive $20 per hour if their minimum wage co-workers receive an increase.
- Increasing minimum wage by 32% in 18 months leads to overall wage inflation, significantly increasing labour costs. For a typical 25-employee restaurant, Bill 148 would lead to a 27% jump in overall payroll costs. This would erode profit margins from a positive 3.4% to a 5.0% loss. To return profit margins back to 3.4%, operators would have to reduce staff by 28% (7 workers in this example), or cut hours by 27%, or raise menu prices by 15%, or a combination of the above.
Why don’t you simply increase menu prices to pay for these minimum wage increases?
- Increasing menu prices is one of many ways restaurant operators will respond to the dramatic increase in wage costs.
- In the highly competitive low-margin foodservice industry, restaurateurs are already charging as much as they can to maximize profitability without losing sales revenue. They increase menu prices only as a last resort, since doing so impacts the number of guest visits and how much guests spend per visit.
- Restaurants compete not only with each other but also with grocery store ready-to-heat and ready-to-eat meals. Grocery stores are far less labour intensive, which means their costs are not impacted as much by wage increases.
- You would be surprised by how even small menu price increases impact consumer behaviour.
- If it was easy to raise menu prices, restaurants in Ontario wouldn’t have average pre-tax profit margins of only 3.4%.
Why is your industry so opposed to minimum wage increases?
Restaurateurs are not opposed to a $15 minimum wage, but they need a realistic time frame to accommodate it. They want their employees to keep up with the cost of living and agree with minimum wage adjustments based on economic indicators. The Restaurant industry did not object to Ontario’s annual minimum wage increases averaging 1.8% for the last three years when Ontario’s minimum wage was linked to CPI. However, increasing minimum wage by 32% in 18 months is too much, too fast, and will harm the very workers it is intended to help.