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Just when you think you finally have a handle on your restaurant’s labor costs, something changes, the cost of labor goes up once again, and you’re left to figure out how to keep up.
Here’s the lay of the land: The federally mandated minimum wage has increased substantially — 21 states and Washington, D.C. saw increases in the minimum wage in 2019, according to Ballotpedia. At the end of September, the U.S. Department of Labor announced a final rule — effective on January 1, 2020 — to make 1.3 million American workers newly eligible for overtime pay. Not to mention adjustments to tip pooling rules and the 80/20 rule.
Rising labor costs like these are often beyond your control. It’s enough to make you want to take a moment to yourself and have a good, cathartic yell in the walk-in. But by focusing on staff happiness and getting strategic with pay and scheduling, you can feel confident once again and regain a level of operational control.
We spoke to two restaurateurs, Andrea Borgen Abdallah and Ryan Egozi, to better understand how restaurant pros can successfully navigate changing labor laws and make adjustments to minimize the impact on their businesses’ health.
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How Can Restaurants Successfully Navigate Changing Labor Laws?
Andrea Borgen Abdallah is the owner of Barcito in Los Angeles, California. As long as she’s been in business, the overtime laws in California haven’t changed much.
Here’s what those laws look like: According to the California Labor Commissioner’s Office, the general overtime provisions in California are “that a nonexempt employee 18 years of age or older, or any minor employee 16 or 17 years of age who is not required by law to attend school and is not otherwise prohibited by law from engaging in the subject work, shall not be employed more than eight hours in any workday or more than 40 hours in any workweek unless he or she receives one and one-half times his or her regular rate of pay for all hours worked over eight hours in any workday and over 40 hours in the workweek.” More info on California overtime laws here.
While the overtime laws themselves haven’t changed much, what has changed is the cost of overtime.
As minimum wage continues to increase the likelihood that restaurants would schedule or allow any overtime is diminishing. Right now, our overtime rate is $19.88, so, pretty expensive.
On the other side of the United States in the Miami area, Ryan Egozi — director of operations at SuViche Hospitality Group — is also constantly at work with his team trying to navigate changing labor laws.
Florida follows federal labor laws as it relates to overtime, but the minimum wage is increasing there, too, albeit at a different pace. As of January 1, 2020, the minimum wage will increase from $8.46 per hour to $8.56 per hour. But there’s a new amendment — the $15 Minimum Wage Initiative — on the ballot in Florida as an initiated constitutional amendment on November 3, 2020, according to Ballotpedia. The initiative is in support of increasing the state's minimum wage incrementally until reaching $15 per hour in September 2026. Meaning that the cost of overtime will follow suit.
“Overtime, when necessary, is absolutely necessary,” says Ryan, “and we happily compensate our team members for working overtime for us. That being said, we try to avoid overtime whenever possible.”
While they’re both navigating labor laws in different cities and restaurant concepts, what Andrea and Ryan have in common is their dedication to finding a balance between ensuring staff wellness and doing what makes sense financially for the restaurant. Here are some ways they shared restaurateurs can handle changing labor laws to keep employees happy and offset increased labor costs.
Stay in the know.
Labor laws like overtime and minimum wage vary from state to state, and sometimes from city to city. With changes coming and going often, it can be overwhelming trying to wrap your head around everything. But, as clichéd of a saying as it is, knowledge really is power.
“Labor laws are certainly a challenge in Los Angeles, and California, because they are constantly changing,” says Andrea. “I'm a board member for the Los Angeles chapter of the California Restaurant Association, and it really helps me stay on top of how our industry's laws change — at the local, state and federal level.”
Joining an organization like a restaurant association provides you with resources and updates on your state and city’s labor laws, in addition to other educational resources. These networks offer you the opportunity to meet like minded restaurant pros, share ideas and stories, and learn how they’re managing challenges large and small.
Visit this page on the National Restaurant Association’s website to learn more about your state’s restaurant association and chapters.
Build a team that makes sense for your restaurant.
To help better manage labor laws — and the costs that come with them — Ryan and Andrea focus on building (and training) a strong team that makes sense for the size of their restaurants.
“We've always maintained a model that allows for a lean, mean team,” says Andrea. “We don't have runners, bussers, or hosts. Our employees are expected to operate in a very team-oriented way, and cross-training is key. We've also adopted a counter-service day time format, and then transition to full table service at night, which gives us some flexibility with how we schedule and manage our labor costs.”
At SuViche, Ryan and the team have the resources to find a balance between high cost and high yield. “Hire better team members, train better, and expect more for less,” says Ryan. “We pay better wages to attract and retain better candidates so labor overhead, while high, is also high yielding.”
Determine how overtime fits in your restaurant.
While the laws vary from state to state, businesses are legally required to pay overtime. There’s no getting around that. But as Andrea told us above, “As minimum wage continues to increase,” Andrea says, “the likelihood that restaurants would schedule or allow any overtime is diminishing.”
For some restaurants, the chance that paying employees overtime will hurt their finances is increasing. That’s why it’s so important to carefully determine how to handle it. Andrea and Ryan, coming from restaurants of different sizes and cities, have unique perspectives on overtime.
In Los Angeles, where the minimum wage has increased to $14.25 per hour, Andrea tries to avoid overtime at all costs. But while her staff aren’t likely to have the chance to rake in overtime pay, that doesn’t mean she’s cutting their earning potential.
“I've structured my entire business around the wellness of my employees — it is my number one priority,” she says. “That being said, we tip share with both the front and back of house to encourage equity and a team-oriented mindset. We provide health insurance for everyone who is full-time. And we create stability in the hours and schedule of all of our employees — all of our schedules are permanent and don't change on a week-to-week basis. I avoid overtime at all costs, but I also ensure that if I'm promising my employee a six-hour shift, I make good on that promise. If we're slow, I'd rather find cleaning projects for them to do than cut them early and diminish their earning potential for that shift or week. If I'm vested in their success, they'll be vested in mine.”
SuViche Hospitality Group is a larger business in a city with a lower minimum wage, so Ryan and the team do things a bit differently than Barcito. And while overtime can still be expensive for SuViche, it’s easier for them to navigate and provides greater benefits across the board.
“Overtime can be necessary, and overtime can be costly. Overtime can ruin a business, but the right overtime can save it,” says Ryan. “[Overtime] can be greatly beneficial to the business and the team members. Especially with seasonal sales and increases in volume, it’s cheaper to pay a loyal long-term team member 20 hours of overtime a week than hire, train and retain a new team member, which realistically would take a month or more before they can even contribute. And they won’t contribute at a high-level at that point.”
In your restaurant, you may want to avoid paying staff overtime to protect your business’s finances. Or you may find that you can actually lean on overtime to reward strong team members and reduce labor costs. Take the time to determine what makes sense for your restaurant, but keep in mind what both Andrea and Ryan dutifully practice: a dedication to staff loyalty and happiness.