Nearly half (47%) of New York City’s full-service restaurants and a majority (53%) of its limited-service outlets plan to eliminate jobs this year because of mandated increases in employees’ wages, according to new research from the New York City Hospitality Alliance, a trade group for restaurants, bars and hotels.
Those cuts are planned after 36% of table service establishments and 50% of quick-service places discontinued jobs in 2018 in anticipation of the pay hikes, the Alliance found. New York’s variety of minimum wages increased on Dec. 31.
Restaurants also tried to cushion the impact by reducing hours in 2018, an option taken by 77% of full-service places and 50% of quick-service and fast-casual outlets, the Alliance said. More shift cuts will come this year from roughly three out of four restaurants (76% of full-service eateries and 75% of limited-service businesses), the study found.
The other widespread reaction, according to the Alliance, is hiking menu prices to cover the upswing in labor costs. Roughly four out of five restaurants (87% of the full-service sector, 78% of limited service) say they will increase prices in 2019 specifically because of the rise in payroll costs. In addition, about three out of five (61% of full service, 63% of limited service) plan to re-engineer items on their menu, aiming specifically to offset the labor increases with better food costs.
Yet the data suggests that places expect considerable fallout from the price hikes. About half (47%) of the limited-service operations that reset their pricing in 2018 said they lost traffic from regular customers. The damage was less severe for full-service establishments, with 34% of the price resets reportedly triggering a decline in regulars’ visits.
The research is a damning assessment of the payroll mandates that were pushed into effect during the administration of New York Gov. Mario Cuomo. The industry has slammed the popular Democrat for championing measures such as doubling the wage restaurants are required to pay servers directly regardless of their tips, to $10 an hour. Employers can count up to $5 of servers’ tips toward the mandated minimum wage of $15 an hour. The Alliance found that servers and bartenders actually take in an average of $25 an hour.
That number would jump, dragging full-service restaurants’ payroll costs with it, if Cuomo calls for ending the state’s tip credit, or the portion of a tipped employee’s wages that come from gratuities. At the governor’s behest, state labor officials conducted hearings throughout the state last summer to gauge the impact of the tip credit. A call for dropping the employer break was expected to come in Cuomo’s State of the State address last week, but the issue wasn’t mentioned.
New York is unusual in having different minimum wages for different parts of the state and different sizes of companies. As of Jan. 1, restaurants employing at least 11 people are required to pay a minimum of $15 if they are located in New York City. If New York establishments have fewer than 11 people on the payroll, the required amount is $13.50 an hour. In the adjacent suburbs of Long Island and West Chester, employers of all sizes are required to pay $12. Elsewhere, all workers are entitled to $11.10 an hour.
The Alliance says its new report underscores a need for “Governor Cuomo to choose policy over politics and keep the restaurant industry tip credit fully intact in order to nurture an economically vibrant restaurant industry in New York City.“
The report, “Rising Labor Costs Survey,” is based on a survey of 324 full-service restaurants and 250 limited-service places between Nov. 27 and Dec. 27 of last year.
The governor did not respond to requests for comment.