How I learned to stop worrying and love $15

By Nick Day

The backlash from employers and their lobbies over Ontario’s $15 minimum wage announcement has been loud but monotone. Their refrain: small businesses simply can’t afford to pay $15/hour. This increase will kill businesses or force them to cut jobs, which will ultimately hurt their low-wage workers – those very workers who are today struggling to get by on $11.40/h, $9.90/h for liquor servers.

1507746_1580842698630295_2009751719_n1Writing in the Globe & Mail, Parisa Mahboubi of the CD Howe Institute says that the new minimum wage will increase poverty because low-wage industries will lose profitability, and Ontario has the greatest share of low-wage earners of any province. In another Globe & Mail article, a Toronto restaurant owner throws a tantrum and declares he’s going to lay off 25-33% of his staff. An employment lawyer writing for the Financial Post tells us his clients are going to have to shut their doors, and a National Post article says that a “very credible study” on Seattle finds their $15 minimum wage has led to workers losing money and bosses cutting hours. However, this “very credible study” has been widely discredited.

All these authorities say the same thing: employers will punish workers for this increase. They all fear the “risk” and hardship for businesses. None of them mention how hard it is to live on $11.40/h, the awful labour practices in some low-wage industries, and none of these writers seem to think it is the least bit alarming that so many people in Ontario are on minimum wage. But most importantly, their doomsdaying all flows from a single unproven assumption: higher wages will hurt small businesses.

Higher wages work

The thing is, that’s not true. On the contrary, higher wages help small businesses thrive. Fair labour practices, such as steady staffing (as opposed to flexi-staffing) are not a burden for small business, but rather help a business operate better, create more revenue, improve efficiency and increase operating profits.

From 2012-2014, I was the general manager of a restaurant in a suburb of Toronto – a new location of a small Toronto-area franchise. I had worked for the franchisee when I was a teenager, now he was opening his second location and I was hired as the general manager of the new store. I hired and trained the staff, ordered the weekly inventory, ran the daily operations, prepped food, served customers, closed out the revenue reports every night and accounted for all the daily receipts and cash-deposits. I saw all the revenues and the costs of the business.

We employed about 30 people. The capacity was 100 customers and the average cheque size was $20. We sat between 100-200 tables each day. The restaurant took in $2000 on a slow day, $4000 on its busiest days, and totalled about a million per year in revenue. Food costs were 30% of revenue. Labour cost would range from 18-25% depending on how many people you scheduled, how much you sold, and how aggressively you cut shifts when business slowed on any given day. Other overheads were about 28% of revenue. Those costs add up to between 76-83% of revenue, leaving an operating profit margin of 17-24%, not accounting for the owner’s salary.

By any measure, this is the prime example of a small, healthy business in a “low-wage” industry in Ontario.

The low-wage disadvantage

But when we first opened our doors, keeping labour costs down was a struggle. Everyone was hired at minimum wage, $11.25 at the time, so under the orthodoxy labour should be cheap and profits should be high, right? But the problem was that with a new and inexperienced crew, nobody was very efficient. In a restaurant, there are a thousand things that need to be done quickly in order to keep the business moving. Tables need to be bussed and cleaned for the next guest, food needs to be run, cutlery polished, dishes washed, ingredients have to be prepped and at-the-ready, and it all has to be done now because there are 20 people waiting at the door for a table.

nhkknWe were under-staffed so during a rush, there weren’t enough people to keep it together. The nightly rush became something of a trauma, this looming, stressful 3-hour nightmare you faced every day. Sales numbers decreased because if you don’t have enough staff you can’t turn tables as quickly and seat the next customer.

But still, at his home each night the owner would watch the sales numbers in real-time from a cloud-based POS system. When the rush died down, if too many workers were still clocked in, he would call and ask why they hadn’t been sent home yet. The constant watchword: “keep labour under 25%.”

Soon enough, stressed out, squeezed and pissed off, the staff began to quit. Others were fired because they were deemed to not be willing to keep up with the pace. In the first 6 months we lost half of the people we had originally hired. We had to quickly hire new workers and put them into the line of fire right away. This meant that on top of all the existing stresses, we had the added burden of constantly training new people and getting everything done with a less-experienced crew.

Raising wages and turning it around

Eventually it reached a boiling point and we made some demands of the owner. We would give raises to those who had stuck it out with us – in many cases up to $14 or $15/hour. We would hire more people, schedule extra time to train them, and schedule extra people when the newbies were on shift. You know, like, train them. As management, we would direct our efforts to creating more consistent scheduling and try to give people steady, predictable work. We wouldn’t cut shifts without advanced notice and practices like unpaid cleaning or waiting around on-call would come to an end.

LbIt6saIt’s amazing how fast things started to improve. Job happiness got a re-set because workers felt appreciated and secure. If the restaurant was slow, instead of cutting scheduled hours we would give the staff cleaning and prep tasks to do. The restaurant became better organized, we tended to have enough people on staff when rushes hit, so overall stress decreased. The employees stopped quitting. As they stuck with us longer, they became more skilled, experienced, and efficient.

You can see where I’m going: this all created an upward cycle. Things started to run better, the restaurant was clean and prepped, the workers had what they needed to do their job well, customer service improved and job stress decreased. Where a $3000 night used to be a nightmare, a $4000 night now became a well-oiled machine.

This is when revenues started to grow. It’s not hard to understand why. An experienced, adequately prepared and appropriately staffed crew provided better services. We made better food, we turned tables faster, we always had those extra ingredients or that polished cutlery ready to go when we needed it. We sold more each night. As revenues went up, labour percentage came down. We paid higher wages, a happier staff, happier customers, made more money and a bigger operating profit margin. Within a few months, we were consistently hitting 18% labour. By the way, we didn’t increase our prices. Today, the restaurant is one of the top-grossing in the franchise chain.

Thinking $15 and Fairness

What’s the moral of the story? We’re being told that labour cost is a chain around the necks of restaurant owners, a business-killer. But the truth is that labour is the biggest asset the business has. It’s the biggest revenue-generator and it has more value than anything else inside those four walls. My experience is anecdotal and local, but it proves that higher wages are not a zero-sum game, they do not have to eat into the profit margin: treating your workforce well can be the best way to a healthy business.

minimum-wageTo bring it back to $15 and Fairness, remember this: the people working in precarious, minimum-wage jobs can’t make ends meet. They organized this campaign and won this victory out of necessity and because, as the ones who understand the on-the-ground reality of low-wage industries, they knew what needed to happen. These industries are using too much cheap labour, part-time labour, and casual jobs. For too long many small-business owners have been allowed to manage sloppy enterprises and get by through squeezing labour.

When Ontario implements $15/h, we have nothing to fear. These business owners – the people who have access to the million dollars of capital it takes to start one of these restaurants – will still be eager for the opportunity to run a business and make profits. In all their entrepreneurial genius, they will figure out how to make it work on 15 and fairness. Meanwhile, for the 25% of Ontario’s workers who currently make less than $15/hour, this will make a world of difference. As they’ll be the first to tell you, the best way to fight poverty is to put an end to poverty wages.

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