“There’s no pot of gold,” one owner warns, as state stuns business community by approving a $15 minimum wage.
On a lonely stretch of road leading to an old Florida fishing village, Bubba’s Roadhouse & Saloon is a rugged little watering hole that’s hard to mistake for a corporate chain.
Built with brick and recycled wood and located next to a German social club on the state’s southwest coast, Bubba’s is the kind of place where blue-collar workers and their families stop after a long day for a burger or a steak, and of course a cold beer.
Old license plates and black and white cowboy photos line the walls. Customers crack open peanuts at the bar and staple signed dollar bills to the door frame. There’s even one of those arcade claw games where people try their luck at grabbing and pulling up live lobsters.
Since the Cape Coral restaurant opened in 1998, it’s weathered tropical storms and hurricanes, including Hurricane Irma, which clobbered most of the Florida peninsula in 2017. It’s survived the Great Recession, the BP oil spill, and the abrupt end to its 2018 summer tourism season when local waters were fouled with algae blooms and red tide.
Then in March came COVID-19, and government-mandated shutdowns. Bubba’s reopened when it was allowed, but business is still slow. The restaurant won’t turn a profit in 2020.
But it’s not hurricanes or algae or a global pandemic that have owner Jay Johnson worried about the future of his business. It’s the passage of a constitutional amendment by Florida voters earlier this month that will increase the state’s minimum wage to $15 an hour, and likely blow a massive hole in his restaurant’s already tight budget.
The state’s hospitality industry, which relies heavily on tipped employees and young workers learning basic job skills, will be hit particularly hard by the wage increases.
To survive, some restaurateurs are contemplating prices increases, staff cuts, payroll changes, and incorporating more technology. Others are pondering just shuttering their doors.
Johnson had hoped to have a strong restaurant he could one day hand off to his now-teenage daughter, if she were interested. But now he’s not so sure. The mandated wage increases “absolutely could” threaten Bubba’s viability as a business, he said. Restaurants like his – full service and family owned, catering to middle-income diners – are among the most vulnerable to the wage increases.
He understands that many Floridians who voted for the amendment were simply trying to give lower-wage workers a pay bump. But they didn’t see the full picture, he said, and local news paid the issue scant attention. Johnson estimates his labor costs for his 35 employees will increase by about $85,000 after the first year of the phased-in increase. That money has to come from somewhere.
“There’s no pot of gold in this building. There’s not cash stashed somewhere,” he said. “And I think people truly believe that there is, that every business owner is sitting on a large stack of money and refusing to pay their employees.”
A Fatal Blow
In most regards, the 2020 election was a good one for Republicans and conservatives in Florida. President Donald Trump improved his showing in the state, and he made significant inroads with the Hispanic population. Republicans flipped two congressional seats in South Florida, and the party tightened its grip on power in the state legislature. Florida, it seems, is getting redder.
But those same voters who dashed Democratic hopes of bringing Florida back into the blue column also passed Amendment 2, the minimum wage increase.
Florida joins Democratic strongholds California, Connecticut, Illinois, Maryland, Massachusetts, New York, and New Jersey as states that have or are moving toward a $15 minimum wage.
The measure, backed by prominent local trial lawyer John Morgan who pumped about $5 million into the campaign, required 60 percent of the vote to pass. It received 60.8.
Morgan is a Democratic backer who spearheaded the 2016 effort to legalize medical marijuana in Florida. He promised voters that raising the minimum wage would lift millions of families out of poverty, and told Politico the effort in Florida “would be a template for the rest of the country.”
Some small business owners agreed with the effort, telling local news outlets that they believed putting more money into workers’ pockets would ultimately be good for them.
But economists who reviewed the measure warned of unintended consequences.
Yes, some workers will have more take-home pay, they said, but raising the minimum wage will make finding jobs harder, and it will increase costs for businesses and consumers.
State and local governments will see costs increase by $540 million by 2027, according to an analysis by Florida’s Office of Economic & Demographic Research. The cost of government contracts also will increase, the analysis found.
A pair of economists out of Miami University and Trinity University estimated that by 2026, when the minimum wage measure is in full effect, it will have cost the state between 158,000 and 181,000 jobs, with about a third of the losses coming from restaurants and other hospitality businesses. Small employers will be disproportionally affected, as larger corporations are in a better position to absorb labor cost increases. Teenage workers and older, part-time workers over 65 will shoulder the largest proportion of the job losses.
“The hospitality industry has faced the most severe consequences from Covid,” according to the economists’ report. “Many of these businesses would receive a fatal blow from Amendment 2.”
Hospitality Included?
Drew McLeod, who owns the upscale restaurant Savour in Tallahassee said he doesn’t think the business model for full-service, independent restaurants will hold up if restaurants are forced to more than double their labor costs over the next five years.
“I am one year into a five-year lease,” he said. “So, in four years I’ve got to make a commitment to renew my lease. I doubt that I would.”
Florida’s current minimum wage is $8.56 per hour, with a $3.02 so-called “tip credit” applied to tipped employees, bringing their minimum hourly wage down to $5.54. But those employees typically make far more than minimum wage. With tips, McLeod’s servers usually make over $30 an hour, he said.
As part of Amendment 2, the minimum wage will increase to $10 next September, and then increase $1 each year until it reaches $15. At that point it will be tied to inflation.
The $3.02 tip credit won’t increase along with the minimum wage, so restaurants will have to pay servers and other tipped employees an $11.98 minimum wage when the increases are fully applied. McLeod’s costs will double for each of his servers, who already make far more than minimum wage.
McLeod suspects he’ll be forced to raise prices, not only because of his own increased labor costs, but because of the increased labor costs passed on from his vendors.
He suspects some restaurants will experiment with getting rid of tipping altogether. Instead, they may add a 15- to 20-percent service charge onto each check that the restaurant owners can spread around to make payroll. Servers and other tipped employees could actually see their take-home pay decrease.
“As a result, how motivated are they going to be to deliver great service? I don’t know that they will be,” McLeod said. “I’ll make 15 bucks whether I give you good service or bad service.”
New York restaurateur Danny Meyer attempted a similar effort five years ago, instituting a “hospitality included” model, only to reverse course and reinstitute tipping earlier this year. Eliminating tipping was financially painful for many servers and bartenders, many of whom left for other jobs, according to a New York Times report.
John Horne, the owner of four Anna Maria Oyster Bar restaurants in Bradenton, south of Tampa, estimates his labor costs will increase by $155,000 at just one of his restaurants in the first year after the wage increase starts to be phased in.
“I can’t absorb $155,000 from my bottom line,” said Horne, who started his business 25 years ago as a single location on the city pier. He now employs more than 300 people.
He said he’ll likely have to cut back on mid-level managers and the number of greeters he employs at the front of his restaurants, the high school kids who are in their first jobs.
“You can’t pay a high school kid $15 to greet you at the front door,” he said.
Horne suspects restaurants will increasingly turn to technology to cut down on labor costs. Cell phone apps will take and track reservations, and even direct diners to their tables. Table-top point-of-sale machines will take orders and payments.
It’s the direction the industry is already headed, but Horne isn’t necessarily a fan.
“Is that hospitality? No, I don’t think so,” he said. “I want someone to be at my table so that when I’m ready for another cocktail, they’ll be there. I don’t have to punch it on an iPad and say ‘Repeat my order. I’ll have another old fashioned. Keep the bourbon coming, please.’”
McLeod predicts the minimum wage increase will lead to further hollowing out of the full-service, family dining market, as fewer entrepreneurs risk their resources in a labor-intensive business model. He suspects the future will see more fast-casual operations like Five Guys and Chipotle that need fewer employees to operate.
“At what point do you say, ‘These razor-thin margins are even more razor-thin, and I’m not going to devote my time to make so little and put so much at risk,’” he said.
Not Scrooge McDuck
Because Florida’s minimum wage increase was approved by voters as an amendment to the state’s constitution, the state’s Republican lawmakers can’t do much but accept it.
“Now that it has passed we will study the language of the amendment closely to see what, if anything, it requires from the legislature,” incoming Republican House Speaker Chris Sprowls said in a prepared statement.
“It’s in the constitution, so it is what it is,” said state Sen. Joe Gruters, who also serves as chairman of the Republican Party of Florida.
Gruters said Florida is resilient overall and still has a “great business climate.” At least businesses will have time to adjust as the wage increases are phased in, he said. But Gruters, a certified public accountant, acknowledged the mandated wage increases will be hard on businesses, and it will be harder for young people to enter the workforce.
“As a small business owner myself, we constantly hire interns from the local colleges,” he said. “We don’t pay them minimum wage, but we start almost all of them at $10 an hour. If they’re good, their price points go up dramatically very quickly once they get the basic skills down and they can actually contribute. It’s those types of positions that are most at risk.”
At Bubba’s, Johnson is worried the full-service restaurant model will crumble. The minimum wage mandates will make it harder for him to pay his workers, and keep prices reasonable for his guests. “If we can’t satisfy both groups, what are we doing in business?” he asked.
He’s frustrated that his first mandated wage increases will go to servers, bartenders and other tipped employees who already are making good money. He’ll have a hard time finding money to give raises to his back-of-the-restaurant workers – cooks, dishwashers -– who make more than minimum wage but don’t receive tips.
Johnson typically works seven days a week at the restaurant. It’s his only income. His personal vehicle is a van that doubles as Bubba’s delivery van. He’s not swimming in extra cash.
“Scrooge McDuck I’m not.”