Despite President Barack Obama's unsuccessful push for a $10.10 federal minimum wage, up from the current hourly rate of $7.25, states and cities are moving ahead with their own increases, some of which are substantially higher than the White House proposal. Among those most prominent hikes is the one taking place in Seattle, which will raise its minimum to $11 on April 1, a higher legally-mandated base wage than the one that exists in New York, the District of Columbia, and Chicago.
Translation: Seattle waiters, already the country's second-highest paid, are about to get a raise.
The increase is Seattle's first major step on its path toward raising the minimum to $15, a baseline that San Francisco will also reach by the end of the decade. That minimum is a significant one as it's what fast food workers are rallying for as part of the "Fight for 15" campaign that will involve a day of nationwide protests and strikes on April 15.
Seattle's actual schedule of raises is somewhat complex and different workers will see their incomes raise at different rates — fast food workers will reach the $15 minimum before most others in the city's restaurant industry — so here's everything you need to know about the wage law, including how much more consumers will end up paying as restaurants pass along the higher cost of doing business.
Does Seattle have the country's highest minimum wage? No, Oakland currently has the highest minimum in the U.S. at $12.25; San Francisco's minimum will go up to that same rate on May 1, and will continue to rise every July until 2018 when the wage hits $15. Seattle, however, will be the first city to hit $15, reaching that limit in January 2017 for large employers; smaller employers will have until as late as 2021 to hit that wage. After the minimum reaches $15 in Seattle, future increases will be indexed to inflation, as will be the case in San Francisco as well.
For those keeping track of things at a more nationwide level, Washington state has the country's highest minimum wage, currently at $9.47.
How will the wage law impact the consumer? Will it increase prices? According to a University of Washington report prepared for the Seattle Income Inequality Advisory Committee, wage increases of about 10 percent can result in a 1- to 2-percent increase in a restaurant's operating costs, which in turn translates to "one-time" price increases of about 0.7 percent. And so because the full wage increase from $9.47 to $15.00 represents a 58 percent change, consumers could see price hikes of about 4 percent total in the coming years from the wage law alone, and it's of course likely prices will rise even further due to general increases in food costs.
That said, the San Francisco Chronicle reports some Oakland restaurants hiked prices as much as 20 percent over the past month. Two of the Bay Area's best tasting menu venues, Atelier Crenn and Benu, have also raised their entry-level prices by 13 and 17 percent, respectively, since the beginning of the year.
And won't a higher minimum cause restaurants to cut back on hiring, hours, and shifts? Research on San Francisco's 2003 wage law showed "little to no measurable effect on employment of hours from minimum wage policies," according to the UC Berkeley Labor Center. The U.S. Department of Labor agrees: "A review of 64 studies on minimum wage increases found no discernible effect on employment."
Will the law positively impact the lives of non-tipped restaurant workers? It should! Non-tipped workers at restaurants employing less than 500 people will earn at least $11/hour as of April 1, a $1.54 raise from the current minimum. That represents $3,203 more in pay over the course of a year, bringing the lowest base salary up to $22,880 (assuming a 40 hour work week over 52 weeks). This schedule of wage hikes, however, only holds true if an employer doesn't contribute to an employee's health care plan.
So wait, health care makes a difference in an employee's actual compensation? Yep, that's the catch. Workers with certain employer-subsidized health care plans will see their wages rise at a slower rate, to $10 in April and to $10.50 in January before gradually increasing to $15 by 2021. This is presumably so as not to doubly burden small businesses coping with the employer mandate of the Affordable Health Care Act (aka Obamacare), a policy that levies a tax on institutions that don't provide insurance to their employees.
This wage discrepancy, incidentally, is a temporary one; employers won't be able to count health care or tips as a credit against an employee's wages after 2025. Diving even deeper: A lay reading of the Seattle ordinance indicates that employers can't profit off this wage break; payments to an employee's health care plan must bring the effective rate of compensation to parity with the corresponding minimum for employers who don't contribute to health care.
So I guess that means tipped-employees will earn a lower, slower rate too. You know it, boss. Tipped employees at restaurants employing less than 500 workers will earn at least a $10 minimum cash wage, a 53 cent hike from the current minimum. This only holds true provided those employees earn at least $1 an hour in tips. If they don't, the employer must make up the difference, bringing the full rate of pay to $11. The minimum cash rate will rise to $10.50 in January and will increase gradually until it hits $15 by 2021.
This separate wage policy is somewhat unusual for Seattle, as the state of Washington, like California and five other states, does not allow employers to use tips as a credit against their minimum wage obligations. That's a fancy way of saying waiters earn the full minimum, as opposed to the lower tipped minimum, which can fall to as low as $2.13 in New Jersey and elsewhere. Alas, the Seattle-specific wage discrepancy between tipped and non-tipped workers is temporary and will end in 2025.
And generally speaking, waiters in Seattle do alright for themselves? You bet they do. According to the Bureau of Labor Statistics, waiters in the greater Seattle metropolitan area are already currently the country's second highest paid, making $14.18/hour on average (waiters in Salinas, California, make the most, at $14.45). Waiters in the greater New York metropolitan area, by comparison, where there is a tip credit, make $13.21/hour on average, while Chicago-area waiters make $10.38.
Will fast food workers and workers at large restaurant chains see their wages rise faster than workers at smaller, independent restaurants? They sure will! Staffers at restaurants like McDonald's, Chipotle, Burger King, and other chains with 501 or more employees will see their wages rise quickly, to $11 in April, to $13 in the beginning of 2016, and then to $15 by January 2017. Those who contribute to an employee's health care plan will be able to push the full hike to $15 back to the beginning of 2018.
The fast food industry didn't acquiesce to these regulations without a fight. Franchisees sought a court injunction against the rules, which treat, say, a local outpost of Wendy's with 30 employees the same as large businesses with over 500 employees. A federal judge threw out that injunction because, "he found that there was a reasonable basis for the determination that franchisees receive enough help from their relationships with franchisors to allow them to pay the higher wage," the Washington Post reports.
What about tipped workers at large restaurant chains like Chili's and Applebee's? Good question! The Seattle wage ordinance does not make mention of tips in reducing an employer's obligation toward the minimum for institutions with 501 or more employees. That presumably means waiters working at T.G.I. Fridays will see their minimum cash wage rise more quickly than waiters working at smaller, independent restaurants.
Will the ordinance cause restaurants to eliminate tipping? That's unclear as of yet, though in recent months and years, a number of San Francisco's most expensive restaurants have prepared for that city's rising minimum by instituting service charges. Doing so is particularly helpful in a state like California or Washington, where the lack of a lower tipped-minimum means that front-of-the-house employees disproportionately benefit from a rising wage. The explanation for this is simple: Waiters, whose bottom rate of pay is the same as cooks, can collect tips, while cooks cannot.
A service charge, legally speaking, is part of a restaurant's gross receipts, while a tip is the property of an employee.
Restaurateurs can get around those tipping regulations by instituting a service charge which it can redistribute to all employees, not just to waiters, runners, and bussers. This is because a service charge, legally speaking, is usually considered part of a restaurant's gross receipts, while a tip is the property of an employee.
Seattle, as mentioned above, has instituted a temporary lower minimum for tipped employees; that provision might keep certain restaurants from going down the service charge route. One big exception, however is the well-known Ivar's Salmon House, which recently decided to end tipping and pay its employees a $15 hourly wage as of April 1.
Has the Seattle wage law already caused restaurants to close? Conservative outlets, from the American Enterprise Institute to the New York Post to Forbes, have had fun with this topic this past month, but the Seattle Times put together a reasonably ironclad piece of reporting explaining that no, recent restaurant closures are not linked to the minimum wage law.
Is Seattle the only city or state to distinguish between employer size and health care payments in their wage ordinances? No. Nevada mandates a minimum wage of $8.25 for employers who don't provide health benefits, and $7.25 for those that do. Minnesota, in turn, has a wage law ensuring a minimum $8.00 hourly rate for employees working at businesses with gross receipts over $500,000 per year, or $6.25 at businesses earning less than that (a full dollar under the federal minimum, though that will change on August 1).
When will the Seattle Minimum rise again? January 1. Mark your calendars!