Colorado Restaurant Servers Could See $2 Pay Raise

March 06, 2014

Boulder Weekly

Since the State of the Union speech in January, President Obama has made a push to raise the federal minimum wage to $10.10 an hour, from $7.25, where it has been since 2009.

Less discussed is the fact that the move would also raise the pay rate for tipped employees, including restaurant industry servers (which is currently set at $2.13 an hour nationally), to $7.07. For some workers that will amount to nearly a $5-an-hour pay raise.

Here in Colorado, it wouldn’t be quite that much. The state minimum for tipped employees is $4.98 per hour. But that potential $2.09 an hour raise is still enough to raise a few eyebrows.

Peter Meersman, head of the Colorado Restaurant Association, opined about the wage hike in The Denver Post on Feb. 8, explaining that the increase would raise menu prices, risk depleting customers and threaten existing jobs, a move that could dampen economic growth during the still fragile recovery from the 2008 recession.

Before going on to describe the razor-thin profit margins of the restaurant industry, Meersman pointed out that Colorado’s state set minimum wage for tipped workers is already significantly higher than the federal minimum of $2.13 per hour for tipped workers.

“The profit margin in a restaurant is less than four percent before income taxes, so a restaurant that grosses $1 million in sales makes $40,000 in pre-income-tax profit,” Meersman wrote. “The money to pay for an increased minimum wage will not come from those profits, it will come from an increase in menu prices.”

Under Colorado law, employers of tipped workers must pay a cash wage of at least $4.98 per hour if they claim a tip credit against their minimum hourly wage obligation. If an employee’s tips, combined with the employer’s cash wage of at least $4.98 per hour, do not equal the minimum hourly wage, the employer must make up the difference in cash wages on a weekly basis.

Some Boulder restaurant operators reject the restaurant association’s position.

“I don’t buy that argument,” says Kevin Daly, proprietor of the popular Mountain Sun pubs. “We pay an $8 minimum wage to everybody. If you pay your people well, you’ll do well. We can’t have people in poverty. There’s too much greed and avarice in this country.”

Daly says the Colorado Restaurant Association’s position on the minimum wage is shaped by the fact that the organization is a tool of mainstream corporate interests geared toward maximizing profits.

“It’s pretty much owned by the big chain restaurants,” he says. “The restaurant association has taken the Republican greed stance. If you can’t can’t afford to pay your people an extra dollar, you’re probably not running it right.”

He adds that some other states with thriving restaurant scenes have much higher minimum wage requirements for tipped workers.

Meersman says none of the association’s Boulder member restaurants were willing to speak about the minimum wage on the record with Boulder Weekly, but he did acknowledge there were some mixed feelings on the issue in the local restaurant community.

Other restaurant managers spoke about the specifics of the minimum wage issue on the condition of anonymity, including the general manager of a large Boulder eatery who says that though he supports a wage increase on principle, it isn’t a make-or-break proposition.

“I think it’s absolutely great, but it definitely makes me think more about labor costs. You kind of deal with taking the bump in labor costs and eventually it will play out in prices,” he says.

But he also explains that the labor cost for tipped workers isn’t the biggest slice of the budget pie.

“Most of the money we spend on labor is for staff that doesn’t make tips. Of course, when you increase tipped employee wages, there’s not much you can do. You can’t really trim hours. For the size of restaurant I manage, it’s a significant increase,” he says. “We’re definitely pinching as much as we can until mid year when we’ll take another look at prices.”

But some economic studies suggest that, on a macro scale, low-paid workers lose their jobs when the minimum wage goes up, according to University of Colorado Boulder economics professor Jeffrey Zax.

“If costs go up, restaurants figure out ways to get rid of one of their low-paid workers, or they just wait … When the next one quits, they look for someone with better skills. Or you can look for other ways to get that money back. You clean employee uniforms every other day. There are all sorts of ways an employer can claw back that increase,” Zax says.

The nonpartisan Congressional Budget Office said as much when it estimated that the increase would eliminate around 500,000 jobs nationwide.

But the number that would benefit from it was far larger, by the CBO’s estimate, approximately 16.5 million or 15 percent of the workforce.

A U.S. Bureau of Labor report found that Colorado had 35,000 hourly employees making below the minimum wage, a number representing 1.8 percent of its workforce.

Still, rather than manipulating the value of unskilled labor, Zax says tax credits might be a better way to achieve a social goal of helping low-wage workers.

Dr. Haragopal “HG” Parsa, the Barron Hilton Professor of Lodging Management at the University of Denver, who owned and operated restaurants across the Midwest for 15 years, says the effects will likely differ geographically.

But he mostly takes issue with the idea of a 30 percent raise kicking in all at once.

He says, “We just came out of recession. Is this the time to dampen the growth with a 30 percent increase?” Parsa also notes that restaurant operators are facing the double whammy of a minimum wage increase atop the new affordable health care requirements. “If I pay 30 percent more, do I get 30 percent more productivity from my workers?” 

Probably not. But his workers would have 30 percent more cash to spend. And restaurants’ best customers are generally restaurant workers.