How will restaurants fare with the higher minimum wage?

Kevin Kathman executive chef at The Larchmont
Kevin Kathman executive chef at The Larchmont

With minutes to go before the first diners arrive, the small kitchen of The Larchmont is busy. Wild leeks are being chopped while pans heat up on the stove. It may seem like business is good, but Tuesday’s decision to raise Los Angeles’ minimum wage has got some in this kitchen worried that increased labor costs will hit them hard.

“It’s an industry with a very low profit margin” explained executive chef Kevin Kathman, as he picked through chanterelle mushrooms, cleaning them and dropping them into a plastic tub. Restaurateurs across LA said they’ve struggled with high rent rates, the rising cost of ingredients, and previous wage increases.

On Tuesday the City Council voted to raise the minimum wage from $9 to $15 an hour by 2020. In passing the new wage standards, Los Angeles follows Seattle, San Francisco, Oakland, and Chicago. Kathy Hoang, director of the Restaurant Opportunities Center of Los Angeles calls the hike “a big step in bringing almost 800,000 Angelenos up from poverty wages.”

Counter service at Manifesto Cafe
Counter service at Manifesto Cafe

But some restaurant owners argue that the minimum wage increase may end up helping workers who don’t need help. George Abou Daoud, a former investment banker turned restaurant owner said that the only people currently making minimum wage in his businesses are tipped workers “who make exceptionally higher than the minimum wage.”

As the Larchmont’s bar manager, Chris Kramer explained, tips are a vital part of many restaurant workers’ pay. “The majority of my income, and every bartender and everyone in the service industry at the front of the house, comes from tips” he said. While Kramer and The Larchmont’s servers earn the California minimum wage of $9 an hour, on a good night they might take home several hundred dollars in tips. Kramer said that the minimum wage increase won’t have a big impact on him, because he already earns substantially more in tips, but it will benefit the back-of-house staff, like dish-washers, who currently make $9 an hour.

Along with a coalition of other owners, Abou Daoud advocated for a separate minimum wage for tipped workers, which would take into account the extra money some restaurant workers receive. “These tips act, talk and walk like a wage, we just need to be able to use them as a wage to maintain stability.”

The minimum wage increase council-members approved on Tuesday did not include a separate tipped minimum. California is one of just seven states that does not have a separate minimum for tipped workers. Workers in states that do have a tipped minimum wage are still supposed to take home at least the regular minimum wage, but their tips can count towards that total. When a worker’s tips are low, businesses are supposed to make up the difference. In reality that doesn’t always happen and that’s one reason why the practice has been criticized by labor organizations.

“There’s really a national movement to move away from a tipped minimum wage,” said Kathy Hoang. “In several states there’s legislation to abolish the tipped minimum wage. I think the city council and the mayor are really taking steps in making progress and keeping LA ahead instead of bringing us backwards with the subminimum wage.” Proposed legislation to introduce a tipped minimum wage at the state level in California was also withdrawn earlier this month in the face of opposition.

Instead, local restaurant owners in Los Angeles are considering other ways to respond to the wage increase.

“There’s got to be a bigger picture solution of how to pay equitably to all employees not just a select few” said Fred Sassen, co-owner of Homestead restaurant in Oakland, where the minimum wage rose recently to $12.25 an hour. Sassen said that after an earlier state-level minimum wage increase he was struggling to balance the books. Now, Homestead has come up with a surprising solution: abolish tipping.

Hassan Del Campo owner of Manifesto Cafe
Hassan Del Campo owner of Manifesto Cafe

In order to give all staff a pay raise, Homestead increased all its prices by 20 percent. “If we take tips off the table and we say the customer doesn’t have to tip anymore now all of a sudden the consumer didn’t even see a price increase,” he said.

However, that kind of solution might only work in businesses where customers are used to leaving large tips, not counter-service businesses.

At the Manifesto Café in Hermon staff say customers generally leave tips of about 10-15 percent of the total bill. Aaron Oropeza is one of seven Manifesto employees who currently make the minimum wage. For him, tips are “a little more in our pocket at the end of the day” but they’re not a huge part of his income. He said the minimum wage increase means he won’t struggle “taking the bus and getting around.” He also said he has student loans he wants to pay off.

Co-owner of the Manifesto Café, Hassan Del Campo, publicly supported the minimum wage hike as a way to reduce poverty in LA. While the tip jar will stay on the counter for now, he said he’s looking at finding other ways to make the business sustainable without cutting jobs or hours. It’s going to be a challenge, he said, but “we’re willing to confront those issues and challenges because we believe in the bigger cause.”