Restaurant owners say their profit margins are smaller than what many lawmakers believe. So when they heard about the bill calling for an increase in both the minimum wage and the tip credit, many restaurant owners started doing the math. They figure that the bill will cost them hundreds of thousands of dollars per year and possibly force some to close their doors.
When Rep. Zeke Zalaski, co-chairman of the Labor and Public Employees Committee, opened up the public hearing Tuesday he reassured them that the bill’s language was a drafting error.
The tip credit is the lower wage paid to restaurant servers and bartenders because they also receive gratuities. The bill up for discussion Tuesday would increase that tip credit, but not to the $9.75 per hour that was included in the bill’s original — and erroneous, according to Zalaski — language.
Regardless, even an increase in the tip credit, which is 31 percent of the minimum wage, was worrisome to restaurateurs like Phil Barnett, who owns the Hartford Restaurant Group that includes Agave Grill, six Wood-n-Tap locations, and TD Homer’s Grill.
Barnett said the only thing his managers have control over is labor costs and goods, which amount to about 70 percent of the business. For those on the committee concerned his staff doesn’t make enough at the $5.69 and $7.34 per hour tip credit rate, he assured them his servers make about $20 an hour, and his bartenders make about $30 an hour when tips are figured in.
If the bill isn’t revised and the change to the tip credit stays in at $9.75, Barnett says it will cost him an additional $311,000 for labor for the first six months after July 1. If the bill is revised to only increase the tip credit a smaller amount, then he says he will still see an increase of $275,000 in labor costs during that same period.
“I don’t know where you think we’re going to find that money,” Barnett told the committee. “There’s only so much you can raise the prices on the menu.”
The National Restaurant Association reported in 2010 that pre-tax profit margins for its members were between 2 and 6 percent.
David Rutigliano, owner of the Southport Brewery Co. chain, said the legislation as written would cost him between $681,000 to $850,000 including taxes and workers compensation. If they revise it to the lesser increase, he says it will still cost him about $300,000 a year if he kept the same level of staff at his six restaurants.
Rutigliano said his servers and bartenders make about $25 an hour. He also was quick to point out that the $25 per hour, which includes gratuity, is what the servers and bartenders report on their taxes. So the state is still getting its money and it’s not putting anyone out of business.
But Arindrajit Dube, an assistant professor of economics at the University of Massachusetts, told the committee there’s no evidence to suggest increasing the minimum wage will reduce the number of jobs or cut workers’ hours to an appreciable degree.
He said labor costs are not a big part of businesses in the “low wage sector.”
Dube said that if the minimum wage is increased, prices of products or goods likely will increase one or two cents on the dollar, but not much more than that.
Rep. Bill Aman, R-South Windsor, said he’s very concerned an increase in the minimum wage would cut into profit margins because it’s likely these businesses, which he believes operate on smaller margins, will go under if you cut their profit margins in half.
Advocate groups like CT Voices for Children believe increasing the minimum wage to $9.75 per hour by 2013 will impact 226,000 workers because those who earn near minimum wage would also receive raises.
Aman asked about how many workers who earn slightly above the minimum wage will be coming in to ask their bosses for a raise if this bill passes.
Dube said it’s likely those who make about $1 over the minimum wage would seek an increase, but he was doubtful it would trickle any further up than those workers just above minimum wage earners.
Currently, 17 states have higher minimum wages than the federal minimum of $7.25 per hour.
Oregon, Washington, and Vermont have a higher minimum wage than Connecticut’s. Washington’s is the highest at $9.04 an hour.
The minimum wage has been increased 12 times in the last 20 years, but if it was keeping pace with inflation it would be closer to $10.40 per hour, Dube said.
House Speaker Chris Donovan, who put forth the proposed bill, said there are 106,000 people in Connecticut making minimum wage and 80 percent are over the age of 20. Based on the current minimum wage of $8.25 per hour, a person working 40 hours a week would make a little more than $17,000 a year, which is “not enough to escape poverty in our state,” he added.
“I think it’s an important time as always to look after our lower wage workers,” Donovan said. “We should adjust the minimum wage for those lowest paid in our society so they can have a decent wage and can contribute to our economy as well.”
Donovan’s bill would increase the minimum hourly wage from $8.25 to $9 on July 1 of this year and then raise it to $9.75 in January. After that, the wage would rise automatically with the Consumer Price Index.
Gov. Dannel P. Malloy said he would review the testimony from the public hearing, but wasn’t ready to endorse or dismiss the idea of increasing the minimum wage. While he supports the minimum wage, he thinks the issue of increasing it needs more study.
“I’m also a supporter of benchmarking and understanding what our competition is doing,” Malloy said. By competition, he’s talking about surrounding states.
He said he’s aware this is the first year of the Earned Income Tax Credit and a paid sick days law, both of which impact the population Democrats are seeking to help with a proposal to increase the minimum wage.