NEW YORK >> In the aftermath of California and New York becoming the first states to raise the statewide minimum wage to $15, some small businesses with hourly workers are rethinking how they can absorb the increase.
The owners of Dog Haus, a chain of about 20 franchise restaurants in the West, may have customers pick up their meals at the counters in two company-owned stores instead of using servers to carry food to tables. The Pasadena, California-based company is also looking at hiring more experienced workers who can shoulder more responsibilities than entry-level staffers who earn minimum wage. For example, a cashier might now take on some administrative tasks. That way, Dog Haus could hire fewer people.
"We've known this has been coming for a while, and we've been preparing for it," co-owner Andre Vener says.
State minimum wages have been rising the past few years as pro-labor groups including unions call for higher pay for workers, especially those at fast-food restaurants. That's forcing small businesses that are more vulnerable to labor cost increases than large companies to reassess their operations. Some are thinking of cutting staff, and others are raising prices.
California and Massachusetts have the highest statewide minimum wages at $10. California and New York this month became the first states to pass laws mandating that a statewide $15 minimum be phased in over the next few years. Between 2013 and 2015, seven cities in Washington state and California either passed laws raising their minimums to $15 or had referendums approving the increase, according to the National Employment Law Project, a group that advocates for lower-wage workers. Some other states raise their minimums annually to keep pace with inflation.
Small and independent retailers and restaurants are likely to feel the biggest impact of rising minimums because they employ many low-wage hourly workers. Nearly three-quarters of U.S. workers paid at or below the federal minimum wage of $7.25 an hour work in retailing or the leisure and hospitality industries, which include fast-food restaurants, according to the Labor Department.
It's not just pay that rises — companies must pay more for workers' compensation insurance and Social Security and Medicare taxes tied to what staffers earn. And when the minimum goes up, many owners give raises to employees whose pay is above the minimum so these workers — often more senior or experienced workers — will continue to earn more than junior staffers, says Jay Starkman, CEO of Engage PEO, a human resources provider based in Hollywood, Florida. It can be risky not to adjust their pay as well.
"You could have a real potential drain on morale and productivity," Starkman says.
But because minimum wage hikes are being phased in, companies have time to prepare.
"Smart owners are going to adjust and they'll take steps to make sure they stay in business," says Gene Marks, owner of The Marks Group, a consulting firm based in Bala Cynwyd, Pennsylvania.
Pour your own coffee?
He expects restaurants to come up with innovations to get work done with fewer staffers. For example, he imagines coffee houses where customers pour their own cups.
In Washington D.C., Michael Lastoria is preparing for a higher minimum by giving his pizza chain staffers raises to as much as $15 an hour. The minimum in the city will be $11.50 as of July 1 and then rise annually with inflation. The staffers at &pizza will all earn $12 an hour by July 1, including brand-new employees.
"We've done everything in our power to get ahead of the curve," says Lastoria, CEO of the chain that has 20 restaurants, including seven inside Washington.
Lastoria's company can absorb the higher labor costs because it has solid revenue growth, he says.
Many companies have reluctantly started raising prices.
Laura Jankowski, owner of three Tropical Smoothie stores in the New York City suburbs, has had to raise her prices about 30 percent — and heard complaints from some of her customers. Fast-food restaurants in the state had a big jump in the minimum wage on Dec. 31. The minimum for their workers in New York City rose by $1.50 to $10.50, and in the rest of the state, $1 to $9.75. The minimum for other workers is $9.
Jankowski isn't sure yet what changes she'll make as the minimum keeps rising.
"We'll be trying to figure it out as we approach each wage increase," she says.
In Seattle, which began phasing in a $15 minimum wage last year, Renee Erickson and her partners have given workers at their four seafood restaurants raises that brought everyone to at least $15 an hour. That meant raising prices 10 percent, but the owners decided it was important to create a positive atmosphere for their workers.
"We just went ahead and did it right away. There's no reason to slowly implement it," Erickson says.