2008: Minimum Wage Sparks Maximum Rage

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For restaurant chain executive Philip Gay, the new year will ring in an unpleasant shock as California’s minimum wage jumps for the second time in two years. With the wage hitting $8 an hour, patrons of Gay’s restaurants will share some of the pain.

Gay is chief executive of West Los Angeles-based Grill Concepts Inc., which owns and operates the upscale Grill on the Alley in Beverly Hills and the Daily Grill chain. Diners can expect menu prices to rise 3 percent to 4 percent to offset the increased cost in wages to his tipped employees.

“When the minimum wage went from $6.50 an hour to $7.50 an hour last Jan. 1, we very reluctantly raised our prices to cover the increase. We were fortunate that in the areas we operate in, we didn’t see any drop-off in business,” Gay said.

This time around, though, the economy is not as robust and many of Grill Concepts’ patrons are either writers or work in Hollywood-related businesses, which have begun to feel the pinch of the writers’ strike. There’s a possibility the price increases will prompt some to scale back their restaurant visits.

Gay is hardly alone in his quandary. Thousands of restaurant owners throughout L.A. County, and businesses in scores of other industries, will face the same stark choice: raise prices, cut back employee hours or take home less profit as round two of the minimum-wage hike kicks in. At $8 an hour, California’s minimum wage will be the highest of any state in the nation, except Washington, where the wage rises to $8.07 on Jan. 1.

But, fortunately for California businesses, the increase in the minimum wage is by far the most sweeping law taking effect Jan. 1. Unlike past new years in which employers were hit by an onslaught of burdensome regulations, this year, the flow of new laws with significant impact on business has slowed to a trickle. For that, employers can thank Gov. Arnold Schwarzenegger, who vetoed every bill that business interests dubbed a “job killer,” or whose veto threats prompted other bills to die in the Legislature.

“It was a good defensive year for businesses,” said John Kabateck, executive director of the California chapter of the National Federation of Independent Business.

This could be the calm before the storm, however. A deal between Schwarzenegger and Assembly Speaker Fabian Nu & #324;ez, D-Los Angeles, for a sweeping overhaul of the state’s health insurance system is working its way through the Legislature. If it passes early next year and wins approval from voters in November, it would require every employer to provide health care or pay up to 6.5 percent of payroll to a state-managed fund that would subsidize coverage for lower-income families.


Nuisance laws

In the interim, there are scores of new laws that Schwarzenegger did sign this past fall that impact specific industries, such as one prohibiting health care facilities from retaliating against employees who file grievances.

There are also dozens of laws taking effect next week that can best be described as paperwork nuisances. Of these, the most prominent is AB 650, which requires all employers to notify workers about eligibility requirements to receive the Earned Income Tax Credit, a federal program to aid low-income workers. The notices must go out at the same time or within a week of the IRS W-2 form or 1099 form (used for independent contractors).

“This may not be overly burdensome, but it’s one more mandate among hundreds that employers must follow,” said Scott Hauge, president of the Small Business California advocacy organization.

Hauge said some of his members are concerned about the possibility of requiring tax credit notification for workers receiving 1099s. “It sets a precedent that essentially begins to treat independent contractors the same as full-time employees. They fear that the next step will be performing the withholding for anyone to whom you send 1099 forms.” As of press time, this provision of the law had yet to be clarified.

Among the other noteworthy laws taking effect Jan. 1 are: AB 338, which extends the eligibility time for temporary disability payments, and AB 392, which requires employers with at least 25 employees to give workers as many as 10 unpaid days off when a spouse is on leave from military deployment.

And then there is AB 869, which was backed by small business groups. It requires state labor code enforcers to crosscheck with payroll records to make sure all employers are providing workers compensation insurance.

“One of the biggest problems for small businesses is the underground economy and the competition from firms that don’t comply with all the labor and employment laws,” Hauge said. “This bill tackles one small piece of that.”


Minimum wage

But for most employers, the big news Jan. 1 will be the minimum-wage hike. Even before it goes into effect, some businesses have already taken steps to deal with it. For example, last month Rosemead-based Panda Restaurant Group Inc., which operates the Panda Express chain of fast-food Chinese restaurants, raised wages for some of its workers whose pay was just above the minimum.

“To prepare for the second phase of the minimum-wage hike, we raised our base salary to $8.50 an hour three weeks ago,” said Gigi Cheung, executive director of compensation and benefits for the chain.

Panda Restaurant Group did the same thing last year as part of its strategy to retain workers in an industry known for rapid turnover, Cheung said, adding that unlike some high-end restaurants, Panda Express has not raised prices to offset the wage hikes.

Panda’s strategy is one reason why business groups that traditionally oppose minimum-wage increases say the impact of the hikes is more widespread than just the lowest paid workforce. “It’s not just the workers earning the minimum wage, but those whose wages are higher but still pegged to that wage,” said Kabateck, of the National Federation of Independent Business.

The other common gripe is largely restricted to the restaurant industry, where food servers generate most of their incomes through tips. Unlike in many states, California requires tipped workers to receive at least the minimum wage.

“They get tips that get them way, way over the minimum wage. It makes absolutely no sense to pay them the minimum wage. But now I have to pay them an extra 50 cents an hour, which will raise my labor costs two or three percentage points,” said Eric Greenspan, executive chef, owner and general manager of the Foundry, a recently opened modern American cuisine restaurant in West Hollywood.

Greenspan said that because he’s still trying to establish his restaurant, raising prices to offset this cost is out of the question. “We’re just going to have to bite the bullet.”

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Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.

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