Key Takeaways:
As of January 1, 2025, several states will implement a minimum wage increase, making it crucial for restaurants to prepare so they can maintain profitability while staying compliant.
Implications for restaurants will include pressure on pricing and increased labor costs, placing a strain on already tight profit margins.
Though there are many challenges to the wage hikes ahead, there are also opportunities such as a boost in employee retention, an opportunity to enhance brand perception, and making an investment in technology.
It’s been 15 years since the federal minimum wage was last increased, with the current rate of $7.25 per hour going into effect in 2009. And while there have been several proposals to raise it, there has been no progress in reaching an agreement. For millions of workers in over 30 jurisdictions, a higher minimum wage exists. And in 2025, more than 20 states, including California, Florida, and New York, are scheduled for an increase.
As the new year approaches, it’s time for restaurants to prepare for the new minimum wage rate hikes, as labor costs typically make up a substantial portion of operating expenses. Though these rising wages will have a significant impact on a business’s bottom line, the cost of non-compliance can be even worse, leading to reputation damage, hefty fines, and a discontented staff.
In preparation for these wage hikes, it's important for restaurant owners to be aware of how these rising labor costs will impact your business so you can maintain profitability while staying compliant.
In this blog post, we’ll arm you with everything you need to know about the rise in the minimum wage, including:
Challenges and opportunities related to wage hikes
Which states are currently experiencing minimum wage increases
10 ways to navigate a minimum wage increase
How to stay compliant with new minimum wage rates
Minimum Wage Hikes
What Wage Hikes Mean for Restaurants
Challenges for Restaurants
Increased Labor Costs
Higher wages for entry-level staffers and substantial raises for experienced employees to maintain pay equity.
Potential strain on profit margins for restaurants
Pressure on Pricing
Increasing menu prices to offset higher labor costs can potentially impact customer demand, placing more emphasis on value with experiential dining and bundling.
Operational Adjustments
Placing a greater focus on efficiency, automation, and technology to offset a reliance on human labor.
Potential Reduction in Hours or Staffing
Reducing staff or operating hours to align labor costs with revenue could negatively impact customer service.
Increased Competition
Restaurants that quickly adapt through innovation and efficiency gain a competitive edge.
Quality, sustainability, and unique customer experiences become more important than ever.
Opportunities for Restaurants
While the wage hike poses significant challenges for restaurant operators, it may also create opportunities for innovation and improvement.
Boosting Employee Retention
A higher wage can improve job satisfaction, reduce turnover, and attract more skilled workers. Restaurants offering additional perks such as career development, lifestyle perks, and flexible schedules may become more attractive employers.
Enhancing Brand Perception
Emphasizing fair wages and ethical practices resonate with customers who value social responsibility.
Investing in Technology
Adoption of tools like human-free technology, mobile ordering, and self-service kiosks can optimize labor use.
Focus on Upskilling
Restaurants can upskill employees, creating a more versatile workforce capable of handling multiple roles effectively.
Building Customer Loyalty
Building strong customer relationships by reinventing loyalty programs, creating personalized experiences, and getting involved in the community can help offset higher wages.
United States Minimum Wage Rates for 2025
Here are the current U.S. state restaurant minimum wage rates for 2025 and the planned increases:
Alabama: $7.25/hour (no state minimum wage law).
Alaska: $11.91/hour.
Arizona: $14.70/hour.
Arkansas: $11.00/hour for businesses with 4 or more employees.
California: $16.50/hour for all employees ($17.27/hour in Los Angeles and $18.67/hour in San Francisco) until June 30, 2025.
Colorado: $14.81/hour ($18.81/hour in Denver).
Connecticut: $16.35/hour.
Delaware: $15/hour.
Washington D.C.: $17.50/hour as of July 2024.
Florida: $13/hour as of September 30, 2024. Planned increases of $1 per hour each year until it reaches $15/hour on September 30, 2026.
Georgia: $7.25/hour ($5.15/hour for employees not covered under FLSA). Clayton County, near Atlanta, will have a $23.46/hour minimum wage as of January 1, 2025.
Hawaii: $14.00/hour.
Idaho: $7.25/hour.
Illinois: $15/hour. The rate is different in Chicago, where the minimum wage for non-tipped employees is $16.20/hour for large businesses that employ 4 or more workers.
Indiana: $7.25/hour (for employers of 2 or more workers).
Iowa: $7.25/hour.
Kansas: $7.25/hour.
Kentucky: $7.25/hour.
Louisiana: $7.25/hour (no state minimum wage law).
Maine: $14.65/hour.
Maryland: $15.00/hour regardless of business size. Montgomery Co. has its own minimum wage laws.
Massachusetts: $15.00/hour and the tipped minimum wage (for workers who provide services to customers and make over $20.00 a month in tips) is $6.75/hour.
Michigan: $10.56/hour until February 21, 2025, when Michigan’s minimum wage will increase to $12.48/hour.
Minnesota: $11.13/hour for all employees, except those 20 years of age or younger who qualify for a $9.08/hour 90-day training wage.
Mississippi: $7.25/hour (no state minimum wage law).
Missouri: $13.75/hour.
Montana: $10.55/hour.
Nebraska: $13.50/hour.
Nevada: $12/hour.
New Hampshire: $7.25/hour.
New Jersey: $15.49/hour (6 or more employees) and $14.53 (fewer than 6 and seasonal employees).
New Mexico: $12.00/hour.
New York: $16.50/hour (New York City, Long Island, and Westchester County) and $15.50/hour for the rest of the state.
North Carolina: $7.25/hour.
North Dakota: $7.25/hour.
Ohio: $10.70/hour for employers with annual gross receipts of more than $394,000 per year.
Oklahoma: $7.25/hour ($2.00/hour if a company has >10 staff or grosses >$100,000 in sales).
Oregon: $14.20/hour is the standard rate, $15.45/hour in the Portland metro area, and $13.20/hour in non-urban counties.
Pennsylvania: $7.25/hour is the minimum wage for untipped employees and $2.83/hour is the minimum wage for tipped employees.
Rhode Island: $15./hour.
South Carolina: $7.25/hour (no state minimum wage law).
South Dakota: $11.50/hour.
Tennessee: $7.25/hour (no state minimum wage law).
Texas: $7.25/hour.
Utah: $7.25/hour.
Vermont: $14.01/hour.
Virginia: $12.41/hour.
Washington: $16.66/hour ($20.76/hour in Seattle).
West Virginia: $8.75/hour (applicable to employers of 6 or more staff at one location).
Wisconsin: $7.25/hour.
Wyoming: $7.25/hour.
10 Ways to Navigate Labor Cost Increases
Navigating minimum wage hikes without compromising service, quality, or profitability requires careful planning and a proactive approach. Here are 10 ways restaurants can manage the increased costs.
1. Review and Adjust Pricing
Menu Engineering: Analyze your menu to identify best-sellers and high-margin items. Adjust prices strategically, focusing on items with less price sensitivity.
Click here for our FREE Downloadable Menu Engineering Worksheet
Bundle Deals: Offer combo meals or upsells to increase average ticket size without appearing to raise prices significantly.
2. Optimize Labor Scheduling
Efficient Scheduling: Use data from your POS system to identify peak hours and staff accordingly to avoid overstaffing during slow periods.
Cross-Training Staff: Train employees to perform multiple roles, increasing flexibility and reducing the need for additional hires.
Read more: Mastering the Art of Restaurant Employee Scheduling
3. Streamline Operations
Automation Tools: Invest in tech like human-free technology, self-order kiosks, mobile ordering apps, and kitchen display systems to reduce manual labor.
Streamlined Menu: A minimal viable menu can reduce prep time, minimize waste, and improve efficiency in the kitchen.
4. Enhance Employee Retention
Employee Benefits: Offer perks like flexible scheduling, career development opportunities, or health benefits to retain experienced staff, reducing the costs associated with hiring and training.
Quality of Life Perks: Implement lifestyle perks beyond the paycheck such as one hour breaks, consecutive days off, and flex time to boost retention, morale, and productivity.
5. Reduce Non-Labor Costs
Inventory Management: Monitor inventory closely to minimize waste and negotiate better deals with suppliers.
Energy Efficiency: Invest in energy-efficient appliances and practices to reduce utility bills.
6. Leverage Technology for Insights
Use analytics tools to track sales, labor costs, and customer preferences. Make data-driven decisions to improve profitability and efficiency.
7. Focus on Customer Experience
Quality and Consistency: Customers are more willing to pay higher prices for exceptional food and service.
Community Engagement: Build loyalty through community events, partnerships, or sustainable practices that resonate with your audience.
From meal kits to merchandising, e-Cookbooks to ghost kitchens, many in the restaurant industry tapped into new streams of revenue to survive.
Meal Prep Delivery: Explore a meal prep delivery business and other streams of revenue.
Catering and Events: Expand your offerings to include corporate catering, private events, or pop-ups.
Branded Products: Sell signature sauces, dressings, or other branded items.
9. Engage Your Team in the Process
Transparency: Explain the reasons for operational changes to your crew and involve them in cost-saving brainstroming.
Feedback: Encourage employees to share feedback from their day-to-day interactions that could improve efficiency.
10. Stay Compliant
Regularly review local labor laws to ensure compliance and avoid fines.
Partner with a payroll or HR service to manage wage and hour tracking.
Staying Compliant
If your state is impacted by changes to wage rates, it’s critical to stay compliant. Here’s how:
Update Labor Rules
If you use a Labor and Scheduling platform that automates compliance, it's time to update your labor rules, ensuring the new hourly rate is adjusted for all impacted employees. Once the new pay rate is updated in the system, this change should be reflected in all aspects of your operation, from hiring and payroll to scheduling and hours of operation.
Communicate with Your Team
Next, inform your management staff, making sure they are aware of the new minimum wage rate. If you have an employee handbook, ensure that the new wage is updated so all staff is informed moving forward.
Adjust your Labor Budget
Depending on how your business will be impacted, it may be necessary to adjust your labor budget. Consider how rate increases will affect not just hourly employees but also salaried workers whose pay may need adjustments.
Rethink Your Pricing
The wage increase may also necessitate a review of your current menu prices or offerings. Analyze how price adjustments could help you offset higher labor costs without alienating customers.
FAQs
Does the minimum wage increase apply to tipped employees?
In many jurisdictions, tipped employees may receive a lower cash wage with tips making up the difference to meet or exceed the new minimum wage. However, some states require tipped employees to receive the full minimum wage plus tips.
Do I have to raise wages for all employees or just those earning the minimum wage?
While the law requires you to raise wages for those earning below the new minimum, you may need to adjust wages for other employees to maintain pay equity and morale.
What if I cannot afford the wage hike?
Explore strategies like adjusting your menu pricing, improving operational efficiency, and reducing non-labor costs. You might also consult a business advisor or accountant to manage the transition.
What are the penalties for not complying with the new minimum wage?
Non-compliance can result in fines, lawsuits, and reputational damage. Ensure accurate wage tracking and timely implementation to avoid legal issues.
Are there exemptions to the minimum wage law?
Some jurisdictions offer exemptions for certain types of employees, such as students, apprentices, or part-time workers, but these vary. Check local regulations to confirm.
Should I communicate the wage hike to my customers?
Yes, transparency about your commitment to fair wages can improve brand perception. Frame it as part of your dedication to supporting your team and delivering great service.
Take Away
While higher wages may take additional bites on profit margins, they also provide a chance to enhance employee satisfaction, reduce turnover, and improve customer service. By proactively adjusting pricing strategies, streamlining operations, and investing in staff training, restaurants can mitigate financial pressures and even thrive in the evolving financial landscape.
Ultimately, embracing these changes with a forward-thinking approach can position restaurants not only to sustain their operations but to foster a positive work environment and strengthen customer relations.
By Eileen Strauss
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