How Restaurant Minimum Wage Increases are Shaping the Industry for Good

Throughout 2024, 25 states experienced increases to their minimum wage. Most of these increases went into effect on January 1st, with the remaining few states scheduled for later in the year, reports tech.co. 

Last year, 23 states and Washington, D.C. similarly saw increases in the minimum wage, according to MPR News. Many of these states are a part of a cohort experiencing incremental increases to their minimum wage over a 5 or 10 year period. The result: an abundance of restaurant closings, widespread job loss, and customer complaints about rising menu prices. 

The restaurant and food service industry has become synonymous with razor-thin margins and, as anticipated, these wage adjustments hit our industry especially hard. A study by the National Restaurant Association revealed that a whopping 82% of restaurants have responded to minimum wage increases by raising menu prices. According to the study, menu prices rose 4.1% year-over-year (YOY) from 2023 to 2024. The American region with the highest menu price growth was the West, coming in at 4.9%. While the region with the lowest menu price growth was the Midwest, coming in at 3.4%.

Only time will tell whether higher menu prices will have a significant impact on consumers’ dining-out behaviors. With more people choosing to eat at home and the need to cut back on staff, restaurants need to find creative solutions to counteract wage increases beyond passing costs on to diners.

Key Takeaways

• How Restaurants Respond to Minimum Wage Increases: Full service restaurants are responding by increasing menu prices, reducing employee hours, reworking food and beverage menus, eliminating jobs, and eliminating tipping.

• 3 Alternatives to Increasing Menu Prices to Offset Labor Costs: This includes alternatives like no-tipping policies, improved service quality and employee satisfaction, and automatic service charges.

• How to Stay Ahead of the Minimum Wage Increase Effects: This includes strategies like being creative in your menu pricing, adapting your scheduling strategy, hiring the right people, investing in the right tech, and monitoring local and national legislation.

• Average Minimum Hourly Wage in the United States: The average minimum hourly wage across all 30 U.S. states is approximately $10.95 per hour.

Needless to say, this minimum wage increase was a significant hit to an industry that’s already struggling with low margins, fickle customers, and high staff turnover.

How Real Restaurants are Responding to the Minimum Wage Increase

John Banquil, CEO of Ling & Louie's Asian Bar and Grill, a four-location restaurant in three states, says, “We’ve had to take incremental menu price increases, worked with food and beverage distributors to secure better contract pricing, and adjusted our scheduling to be more efficient.”

Banquil believes that passing along costs to diners is not the only solution. In his 15 years of business experience, Banquil has seen the importance of employee satisfaction in driving business success. “We find it more important than ever to pay far above minimum wage for great employees. We need to maintain a great culture that ensures people love coming to work every day,” he continued.

Contra Costa News revealed that in 2024, some restaurants in the U.S. have responded to minimum wage increases by cutting jobs. For instance, after California raised the minimum wage to $20 per hour for fast-food workers in late 2023, nearly 10,000 jobs were lost in the state's fast-food sector by January 2024. This represented a 1.3% decline in employment in that industry.

Making sudden or dramatic changes in staff roles or eliminating positions may result in short-term savings, but these moves can often result in increased employee turnover.

Full-Service Restaurants

In response to the latest minimum wage increase to $16 per hour in New York City as of January 1, 2024, full-service restaurant operators are adjusting their business operations in the following ways: 

Increase menu prices

84.6%

Reduce employee hours

70.3%

Rework food and beverage menu

62.1%

Eliminate jobs

48.2%

Eliminate employee’s tips 

4.1%

I will NOT make any of the above changes

2.5%

Other

9.7%

Restaurateurs are actively searching for an option that allows them to hold onto their best employees and cover the increased labor overhead without compromising the quality of their dining experience – so far, there isn’t a clear winner.

Alternatives to Increasing Menu Prices to Offset High Labor Costs

No-tipping policies have been adopted in markets like New York, where the minimum wage is up to $16, but, according to Grub Street, both diners and restaurant employees have balked at this new approach. Customers want to be able to reward high-quality service workers, and top-performing restaurant talent have grown accustomed to being acknowledged for their abilities.

A restaurant satisfaction survey conducted by AlixPartners in 2019 found that 67% of respondents dislike automatic service charges, one of the most common tactics restaurants are using to offset mounting labor overhead.

Here’s where it gets interesting: When asked whether they support an increased minimum wage, 59% of respondents were in favor; 64% stated they would be willing to pay more as a result. However, when asked about the factors that may deter dining out in the year ahead, 49% said they were planning to put their money toward something other than going out to eat, and 30% believe meals at a restaurant are too expensive as is.

So, it seems, restaurant diners are in a bit of a catch-22: They believe front-of-house restaurant staff should be paid more for their hard work and, in theory, would support higher meal prices, but when the bill comes, they aren't comfortable with what they see. So much so that they may just stay home and save their dollars for something else.

Sadly, about 1 in 10 restaurants say that closing locations has been the only solution to wage increases.

Boston landmark Durgin Park (founded in 1827) cited labor costs as the reason for its closure, and a Harvard Business School study indicated that restaurants that were already experiencing service or popularity issues had a higher likelihood of going under if the minimum wage went up in their area.

Matias Pesce, CEO of the V & E Restaurant Group, oversees 60 restaurants in Miami, Mexico City, and Las Vegas. With 35+ years of experience in the industry, he stressed that labor costs will ultimately have an impact on the customer experience – whether through increased menu prices or diminished service. He believes strongly that service quality and employee satisfaction are crucial in the face of wage increases.

Matias asserts, “We have a great working relationship with our team members and a very good understanding of our guest count trends… We did not have to make adjustments to employee hours or price increases to offset the [minimum wage] impact. We understand a modest increase improves worker productivity and reduces employee turnover and absenteeism as well.”

How to Stay One Step Ahead of the Minimum Wage Increase Effects

Rising labor costs can be beyond your control, but taking a proactive approach and adjusting your response plan can help minimize their impact on your restaurant's health. Here are some ways restaurant owners can successfully offset increased labor overhead.

Be creative in your menu pricing.

Your menu prices should balance customer spending habits and preferences, market research, and competitive intel, all while offsetting operational costs in your restaurant. Your menu's design and layout also has an impact on customer perception.

If you're raising your prices, now is a good time to evaluate how you present your selections to customers. To get started on the journey to mastering menu pricing, sign up for Toast's free Menu Engineering Bootcamp.

Adapt your scheduling strategy.

Carefully tracking your labor costs and creating schedules around peak sales times is key to controlling labor expenses. You can create a scheduling strategy based on sales data that'll also keep your servers happy.

Hire the right people.

If you employ service employees with a can-do attitude and a range of skills, they'll be able to pick up the slack if you need to downsize your team. Knowing how to interview, cross-train, and build a strong culture is more important than ever.

If you need to consolidate positions, do it mindfully and get feedback from your team throughout the process. Operating with fewer people means you need to be more selective in looking for talent. According to the Harri study, turnover increased by 35% when positions and hours were cut due to wage increases. If you're stuck in a hiring rut, take this interactive course – Hiring the Modern Restaurant Workforce – for in-depth insights and actionable advice related to the restaurant hiring cycle.

Stay closer than ever to staff and customer sentiment.

Customer feedback is vital to the success of any business. This is especially true in the restaurant industry. Consistently solicit and collect feedback from your guests via all channels possible. Read Facebook and Instagram comments, keep close tabs on your Yelp or TripAdvisor page, and send out surveys periodically using your restaurant CRM platform.

Restaurants that use Toast can now access customer feedback in real time using the guest feedback feature. During the payment process, guests are prompted to rate their experience and leave comments for the staff. Should a poor rating be recorded, restaurant management is instantly alerted via text message, giving them the opportunity to connect with guests and learn how their restaurant can improve for next time.

Invest in tech.

In recent years, restaurant technology has evolved to take the stress out of running a restaurant. Handheld point of sale technology can be a big help for restaurants in a tough labor market. Teams that incorporate handheld payment products into their restaurant operations have found they increase server gratuities  and decrease turnover. They can also help to onboard new staff members quickly with notes about menu items, ingredient info, and wine pairings, and can turn tables faster by cutting out the time spent walking between the table and the terminal.

Monitor local and national legislation.

This may impact your future costs, and be proactive in finding solutions. These simple charts from the U.S. Department of Labor can help you monitor the applicable minimum wage in your area and prepare for any upcoming changes to labor laws as well as wage increases to comply with the state minimum wage law and federal law. 

Minimum Hourly Wage for each U.S. State (2024)

This is a combination of the state laws cash wage, maximum tip credit against minimum wage, and tipped minimum wage rate:    

• Alabama: $7.25

• Alaska: $11.73

• Arizona: $14.35    

• Arkansas: $11.00

• California: $20.00

• Colorado: $14.42

• Connecticut: $15.69

• Delaware: $13.25

• Florida: $12.00

• Georgia: $7.25

• Hawaii: $14.00

• Idaho: $7.25

• Illinois: $14.00

• Indiana: $7.25

• Iowa: $7.25

• Kansas: $7.25

• Kentucky: $7.25

• Louisiana: $7.25

• Maine: $14.15

• Maryland: $15.00

• Massachusetts: $15.00

• Michigan: $10.33

• Minnesota: $10.85 (Large employer: annual gross revenue of at least $500,000), and $8.85 (Small employer: annual gross revenue of less than $500,000)

• Mississippi: $7.25

• Missouri: $12.30

• Montana: $10.30 (Business with gross annual sales over $110,000), and $4.00 (Business not covered by the Fair Labor Standards Act (FLSA) with gross annual sales of $110,000 or less)

• Nebraska: $12.00

• Nevada: $12.00

• New Hampshire: $7.25

• New Jersey: $15.13    

• New Mexico: $12.00

• New York: $16.00 (NYC, Long Island, & Westchester), and $15.00 (remainder of NY state)

• North Carolina: $7.25

• North Dakota: $7.25

• Ohio: $10.45

• Oklahoma: $7.25

• Oregon: $14.70 (standard statewide), $15.95 (Portland metro), and $13.70 (non urban counties)

• Pennsylvania: $7.25

• Rhode Island: $14.00    

• South Carolina: $7.25

• South Dakota: $11.20

• Tennessee: $7.25

• Texas: $7.25    

• Utah: $7.25

• Vermont: $13.67

• Virginia: $12.00

• Washington: $16.28

• West Virginia: $8.75

• Wisconsin: $7.25

• Wyoming: $7.25

If you aren't already, becoming active in your local and national restaurant associations or attending niche industry events will help you learn from others in the industry who are facing the same challenges.

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