Is There a Downside to a $15 an Hour Minimum Wage?

The International Franchise Association has made defeating Seattle’s $15 per hour minimum wage its “top policy fight,” arguing that laws like these unfairly discriminate against franchisees, who will be lumped in with big businesses and forced to comply with the law by
2017, the earliest deadline of the staged roll-out. PayScale spoke via email with Chad Mackay, President and COO of El Gaucho, a high-end steakhouse chain based in Seattle, for his take on how the law could affect both businesses and workers.

(Photo Courtesy of Chad Mackay)

PayScale: Do you think the $15 minimum wage is good or bad for workers and businesses?

Chad Mackay: Nothing is for free. Some will be hurt by this and some who made minimum wage before will see an increase. What will never really be known is how many people didn’t get a job because it no longer exists or those that lost jobs or hours due to such a dramatic increase. Well-capitalized businesses and those who can use technology to squeeze labor out, such as some of the national sandwich shops, will do OK, while our homegrown businesses may go out of business quietly and with little notice of the general public.

PayScale: What are some of the challenges the new minimum wage presents business owners?

Chad Mackay: For our group of restaurants, imagine we went to $15 in 2015 and don’t recognize total income. For our two Seattle restaurants, it would be a $700k increase in costs over the prior year. That’s a huge negative impact. Now, they’ve slowly phased everything in but we are looking towards the future and how do we cope. We have to deal with the final impact and not just to the yearly increases. At the end of the phase in, our city wage will be about 50 percent higher than the state.

PayScale: Does the phase approach to raising the minimum wage help offset any of these challenges?

Chad Mackay: Yes, it helps to come up with the long-term solution, which is to say, that the full-service restaurant industry in Seattle is going to undergo structural changes to survive. You can’t just trim labor or tweak things when the impact is so great. Also, for the restaurant groups that are categorized as large employers, they have very little time to make those structural changes.

PayScale: How do benefits figure into the calculation of the new minimum wage?

Chad Mackay: The legislation takes very little into account for benefits. There is small consideration given for healthcare and for tips that are eventually phased out. For our restaurants, we offer 100 percent match on 401k and healthcare benefits at 25 hours a week. We also pay 50 percent of premiums for families, which is almost unheard of now in business. We are going to have to have conversations with our teams about what is important and how we all get through this working together.

PayScale: What would you change about this law or how it’s being implemented?

Chad Mackay: Number one is that absolute disregard that tips are income. The IRS, banks, mortgage companies, unemployment insurance, disability insurance, and most importantly, our team recognized and values tips as income. In fact, our servers make average above $30 hour plus minimum wage and bussers make $15 hour plus minimum wage. The vast majority of raises to comply with the new minimum wage laws go not to the lower paid kitchen but to the higher earning employees of the restaurant. This actually grows the income gap between the service staff and culinary teams.

For more discussion of Seattle’s minimum wage increase, read our interview with John Pepper, co-founder and former CEO of Boloco, a Boston-based restaurant chain.

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