Private Events & the Rising Minimum Wage

Across the country, the minimum wage is on the rise. Thanks to inflation, the Great Recession and technology changing the face of many modern workplaces, a years-long debate has been happening surrounding what constitutes a minimum wage. We took a deep dive into the concept of the rising minimum wage — what it means for restaurants, their employees, and the American economy.

The restaurant industry employs more than 14 million Americans and racks up $710 million in annual sales, which represents about 4 percent of US gross domestic product. (National Restaurant Association)

A Timeline

In August 2015, The New York Times reported restaurant owners, customers and staff had long been railing against “the tyranny of tipping” However, it didn’t look like the concept was going anywhere anytime soon. Soon, a spurt of new minimum wage proposals prompted more restaurateurs to begin experimenting with no-tipping policies as a way to manage increasing labor costs. “Although mandatory service charges are common around the globe,” they reported, “restaurant tipping is deeply ingrained in the American psyche. Owners worry that potential diners will see significantly higher prices without realizing that they include gratuities. Restaurateurs also worry their best servers will leave.”

A year later, in December 2016, a reporter for FSR Magazine wrote “there are few expenses that affect business owners more than employee wages.” The piece went on to explain that experts estimated semi-variable costs, like salaries and wages, accounted for 30 to 40 percent of a company’s total revenue. “As expected,” it read, “the remaining revenue covers other overhead costs like operational expenses, inventory, leasing agreements, insurance and everything in between.” It appeared that the fear for many small business owners, specifically those in the restaurant industry, was that authorizing a federal minimum wage increase would have a significant impact on balancing their budget — particularly if they were already struggling.

In 2016, California became the first state to adopt legislation that will gradually raise the minimum wage to $15 per hour. (Journalist’s Resource)

In April 2017, Upserve pondered the question of whether or not raising the minimium wage was actually good for restaurant workers. “Many states believe it is good for restaurant employees,” they reported. “Over 20 of them have already increased their minimum wage in 2017.” They cited one of their own surveys of tipped workers, finding that 73 percent reportedly saw no increase in pay, while 24 percent saw their tips decrease and 45 percent of tipped workers said their customers think they make more money than they actually do. “For restaurant owners trying to control their costs,” Upserve added, “a no tipping policy is an option, but… 69 percent of workers said they would not accept a substantial increase in their hourly pay if tipping were removed from their establishment.” It appeared that, as a whole, the industry was still undecided on if the ultimate impact of a rising minimum wage would end up being positive for restaurants and their workers.

That same month, the New York Post covered the topic, including analysts who said, “in an industry challenged by changing eating habits, rising labor costs and oversupply, the latest declines locally are also another stark sign of how the average American consumer is tapped out.” Their data showed that more restaurant patrons are staying home or switching over to fast-food options as cheaper alternatives, adding that “that’s not a good omen for the economy. Across the nation, more than a dozen restaurant chains with thousands of workers in hundreds of locations have collapsed or filed for bankruptcy in the past year.”

In May 2017, the publication New Republic weighed in. They discussed how, in the previous November, four states—Arizona, Maine, Colorado, and Washington—passed ballot measures to raise the minimum wage above $7.25 an hour. “Nowhere has the ‘think local’ strategy seemed more promising than in the fight to increase the minimum wage,” they stated. “Since 2004, 34 localities from Maryland to New Mexico have raised the minimum wage above their state levels… 74 percent of Americans say they want to raise the minimum wage, and the Maine measure passed with 420,000 votes — more than any ballot initiative in state history.”

Restaurant Hospitality discussed the topic that same month, covering the fact that “one of the pioneers of the no-tipping model” had decided to go back to tipping at his eateries. Andrew Fortgang, owner of the restaurants Little Bird Bistro and Le Pigeon in Portland, Oregon, had reportedly been experimenting with the model for about a year. RH said that “servers also received a higher hourly wage and shared in revenues based on sales, offering them a more consistent pay rate, rather than relying on tips. But, in the end, the increase in menu prices was too much for some diners.”

In June 2017, Seattle Times offered an update on the rising minimum wage in their city. “Seattle’s minimum-wage law has led to higher pay for restaurant workers without affecting the overall number of jobs in the industry.” They also cite a new study from the University of California, Berkeley, showing employment in food service from 2015 to 2016 was not affected, “even among the limited-service restaurants, many of them franchisees, for whom the policy was most binding.” The current minimum-wage law, which took effect in April 2015, aimed to raise the minimum wage gradually until it reaches $15 by 2021.

Adjusted for inflation, the federal minimum wage peaked in 1968 at $8.68 (in 2016 dollars). Since it was last raised in 2009, to the current $7.25 per hour, the federal minimum has lost about 9.6% of its purchasing power to inflation. (Pew Research Center)

What Our Clients Are Saying

Gather talked with Kirby Pratt, Manager of Corporate Programs and Partnerships at Seattle-based Restaurants Unlimited Inc., about her thoughts on the rising minimum wage and private events:

The Northwest was one of the first areas in the U.S. to embrace raising the minimum wage. Why do you think this is?
From my personal view, I’ve lived in Washington my whole life. Washington, Oregon and California have always been trendsetters for workers rights and things affecting the well-being of the middle class — things like keeping housing costs and taxes down, and finding ways to make things easier.

How do you think private events can help restaurants and other businesses supplement revenue while paying employees a higher wage?
The one thing events always have going for them is that they’re based around a contract. There’s not a lot of day-of surprises, because everything is agreed upon ahead of time, like food and service costs. When you’re opening a restaurant, you’re kind of guessing and trying to monitor the trends week over week. There’s no guessing in events.

What do you see as the benefit of businesses increasing the minimum wage? Any downsides?
For events specifically, we’re seeing that this is where the guest is going as well. The trend of the industry is that guests want a more experiential event — they want classes and fun things to do. We see a lot of restaurants closing for private events or special parties to guarantee staffing, but also to have that sense of excitement. There’s an increase in the push for our companies specifically to maximize any guaranteed revenue we can. We can guarantee the event experience while keeping people working and knowing what shifts to schedule for. It’s not just minimum wage, but also secure scheduling that’s happening up here in the Pacific Northwest.

What would you say to someone wary of implementing a private events program or event management software?
When I came on [in my current role], that’s what we were dealing with. We had five restaurants with a very set-in private dining program. It was doing well and generating lots of revenue because they had private space, so that’s how we looked at it. Events were only a focus if you had a standalone room just for an event. I’d been working on changing that mindset — that events are important to anyone, and if we could shut down a restaurant once a week for a 100 percent buyout, that’ll be more revenue than just hoping regulars come in. By changing that mindset, it’s guaranteed, set, planned and easier for forecasting. The more you can host [private events], the more you can control your business.

29 states, plus the D.C. and nearly two dozen cities and counties, have set their own higher minimums. State hourly minimums range from $7.50 in New Mexico to $11.50 in D.C. (U.S. Department of Labor’s Wage and Hour Division)

How Private Events Can Help

The current state of the minimum wage debate varies widely across the country — and as more restaurants experiment with providing a higher living wage to employees, implementing a private events program is a great solution for increasing revenue in a way that’s predictable, easy, manageable and effective.

Want to learn more about what Gather’s cloud-based event management software can do for you? Request a live tour here.