St. Louis and Kansas City face citywide minimum wage mandates

Got the article below emailed to me from the Missouri Restaurant Association regarding minimum wage mandates being proposed for the cities of St. Louis and Kansas City. Like many cities/states across the country the push for $15/hour minimum wage is gaining momentum in MO as well. The bills being proposed in MO seem to be more gradual than some that I’ve been seeing lately.

Here are some highlights from the article:

  • In STL a jump to $10 an hour in 2015 and $15 by 2020
  • In KC where a $15 wage was proposed in an ordinance introduced in late March, the discussion is now focused on a committee substitute for the ordinance that calls for a $13 minimum wage as early as 2020
  • Tipped employees would be set at 50% of the prevailing minimum wage
  • A study was conducted on 7 anonymous restaurants financial statements and found the following:
  • Minimum Wage/Tipped Wage $10.00/5.00 $11.00/5.50 $12.00/6.00 $13.00/6.50
    Average Net Loss 109,321 306,174 510,073 721,369
    Price Increase Required to
    Maintain Same Profit Dollars
    6.6% 11.6% 16.7% 21.9%

I have copied the full article below:

On June 2nd, a spokeswoman for Mayor Francis Slay confirmed the mayor supports a minimum wage increase for the City of St. Louis.  A formal bill that will propose a jump to $10 an hour in 2015 and $15 by 2020 will be filed on Friday.  Further details will not be known until the final bill is submitted.

In Kansas City, where a $15 wage was proposed in an ordinance introduced in late March, the discussion is now focused on a committee substitute for the ordinance that calls for a $13 minimum wage as early as 2020.  The minimum cash wage paid to tipped employees would be set at 50% of the prevailing minimum wage.

An internal study of seven restaurants agreeing to provide financial statements and summary payroll information to MRA on the condition of anonymity indicated restaurants will struggle under the wage mandates.

Under current staffing levels and menu pricing, all restaurants in the group would be unprofitable with a $10 minimum wage and a $5.00 tipped wage.  The average net loss would equal $109,321.  To maintain the same amount of profit, in terms of dollars, an average increase in menu prices of 6.6% would be required.  The table below indicates the same information for other minimum wage and tipped wage amounts.

Minimum Wage/Tipped Wage $10.00/5.00 $11.00/5.50 $12.00/6.00 $13.00/6.50
Average Net Loss 109,321 306,174 510,073 721,369
Price Increase Required to
Maintain Same Profit Dollars
6.6% 11.6% 16.7% 21.9%

 

Suffice it to say that restaurants cannot, and will not, continue operating at this level of financial loss.  Restaurants will be forced to adjust current operating models.  The adjustments will likely include a combination of menu increases and reduction of employee hours in the earliest years of the wage mandate.  In later years, more drastic measures are suggested.  It must be acknowledged that restaurants in the City of St. Louis and the City of Kansas City could substantially reduce labor costs by relocating to another Missouri municipality or another state.

It should be anticipated that many St. Louis and Kansas City restaurants will relocate or close.  There will be a corresponding decrease in sales tax and earnings tax revenue for the two cities.

The wage mandate will likely strangle the catering industry within the two cities as well.  With a much higher cost structure than competitors a short distance away, caterers will be challenged to compete in this industry segment.

Restaurants are not the only businesses that will be affected by the wage mandate.  Similar adverse effects will be experienced in other sectors.  For one, the long-term care industry will be forced to change.  One Kansas City facility provided the following schedule of information to indicate the increased payroll and payroll taxes the proposed substitute ordinance would create.

2016 $71,100   2019 $1,286,400
2017 $284,400 2020 $1,570,700
2018 $643,200  

This facility and others within the industry have no means to increase revenues by an amount even remotely close to covering the increased costs.  Long before we reach 2020, this facility that cares for Kansas City’s elderly will be closed.

Labor unions, and the worker centers they fund have advocated for a higher minimum wage in other cities, also.   After the passage of the wage mandate, organized labor has then pushed for an exemption that allows businesses with unionized workforces to pay less than the minimum wage.  The effect is to give labor an opportunity to present unions as the “low-cost” option in order to secure union members and union dues.

Two recent articles on this topic can be accessed here:
http://www.latimes.com/local/lanow/la-me-ln-los-angeles-minimum-wage-unions-20150526-story.html
http://time.com/money/3898459/los-angeles-minimum-wage-unions/

Missouri Restaurant Association will remain engaged on the issue to affect the best possible outcome for restaurants in St. Louis City and the City of Kansas City.

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