Table of contents
This article is for educational purposes and does not constitute legal, financial, or tax advice. For specific advice applicable to your business, please contact a professional.
Restaurant average hourly earnings rose by 50 cents last year, starting at $17.18 in January 2023 and ending at $17.76 in December 2023. That’s according to the Square Payroll Index data, which uses Square labor management and payroll processing solutions to track wage growth in the industry. The same data shows that since 2017, the average hourly earnings for restaurant workers have grown steadily, from $10.96 in January 2017 to $18.18 in April 2024. This represents a 66% increase, compared to a 40% increase for retail workers over the same period.
While last year’s wage increase isn’t as high as the $22 restaurant minimum wage hike California restaurant owners braced for at the beginning of the year, rising pay requirements for restaurant workers don’t show signs of slowing. Half of the U.S. states plan to boost their general minimum serving wage in 2024, with baseline pay ranging from $10.30 to $16.28 by the end of the year. Some regions have gone on to take this a step further, with industry-specific wage requirements for food and beverage workers. Officials in California, a known trailblazer for employment laws and labor policy, for instance, recently passed legislation requiring some qualifying fast-food restaurant chains to pay workers a minimum of $20 an hour starting in April 2024. Shortly after, Chicago city officials voted to eliminate subminimum wages for tipped workers, setting rules to increase base pay in a phased approach year-over-year through 2028.
Whether your business is in Illinois, California, or elsewhere, knowing the latest restaurant minimum wage regulations and how restaurant pay is trending across regions can help you ensure you’re following the law. Tracking this information can also let you know what a competitive pay rate is for your employees, which can help motivate them to stay. Let’s dive into what these laws entail and what they may signal to restaurant owners across regions over the next year.
Understanding California’s latest restaurant industry wage legislation
In September 2023, California Governor Gavin Newsom signed AB 1228, which increased the minimum wage for fast-food restaurant workers in California to $20 an hour beginning April 1, 2024. The law further states that the minimum wage for fast-food employees will increase each year until 2029, based on the Consumer Price Index. According to the law, fast-food restaurants are defined as businesses that have more than 60 locations nationally under the same brand and “provid[e] food and beverages for immediate consumption on or off premises where patrons generally order or select items and pay before consuming, with limited or no table service.” Think of your typical national, 60+ location QSR franchise.
What does this mean for affected fast-food restaurant owners? With the law already in effect, now is the time to take a closer look at your labor costs and understand what measures you can take to comfortably comply with this change. You may choose to audit your current expenses, increase the best-selling menu items, or automate tasks to offset production costs.
Legal experts who are familiar with the industry are encouraging restaurant owners to prepare for potential additional wage increases and industry regulation changes that will likely follow in the future, as this law also created the Fast Food Council within the Department of Industrial Relations. The Fast Food Council consists of nine members, a mix of fast-food restaurant industry members, owners, employees, employee advocates, and one unaffiliated member, all appointed by the governor and legislative representatives. The council can recommend additional workplace regulations that address health, safety, and employment standards for covered fast-food restaurants.
What to know about Chicago’s One Fair Wage ordinance
Shortly after California’s legislation passed, the Chicago City Council approved the One Fair Wage ordinance, eliminating a subminimum wage for tipped workers. While the current minimum wage for most Chicago workers is $15.80, the subminimum wage is $9 to $9.48 per hour. This new law will increase the minimum wage for tipped workers by 8% starting this month (July 2024) and will continue to go up by 8% each year until 2028.
This legislation also makes Chicago the largest city to remove the subminimum wage for tipped workers, following California and several other states, including Washington, Oregon, Nevada, Montana, Alaska, and Minnesota, requiring employers to ensure their workers earn at least full minimum wage, regardless of whether they are tipped workers or not. Square Payroll Index data shows that 62% of restaurant workers in Chicago already earn the full minimum wage of $15.80 per hour. According to the data, the median restaurant worker in Chicago currently makes $16.12 per hour before tips and overtime, or $21.70 including tips and overtime.
What does this all mean for your business? First, competitive pay is already a standard in cities like Chicago and will soon be for many more states and cities. If your pay rates are already in line with industry standards, you may want to check other areas of your business for potential savings. Reducing unnecessary expenses elsewhere can help you stay profitable without compromising employee wages.
If your restaurant does not currently pay above the median wage, think about ways to enhance your compensation package. Offering additional benefits such as health insurance, paid time off, or professional development opportunities can make your business more attractive to potential employees. This can improve staff retention and reduce turnover costs.
The impact on labor costs for businesses that rely on waiting staff
With evolving wage regulations like these, it’s easy to wonder, “Do waiters make minimum wage?” The short answer is yes. However, the specific amount depends on the state. In most cases, waiters and other tipped employees are subject to a lower minimum wage rate, often referred to as the tipped minimum wage. This rate can be as low as $2.13 per hour under federal law, provided that tips bring their earnings up to at least the standard minimum wage. However, many states, cities, and counties require a higher base wage for tipped employees, ensuring that the total wage for waiters meets or exceeds the state’s minimum wage. Some cities and states — like Chicago and California — have removed the subminimum wage for tipped workers altogether.
Why is this important? The Square Spring Quarterly Report revealed labor costs have increased more in some sub-sectors than others. While there’s a downward trend in labor costs for quick-service restaurants, bars and full-service restaurants — which typically rely more on waiting staff — are seeing an upward trend in labor costs. Knowing the specific minimum wage for waitressing and tipped workers in your business locations is crucial for managing your business finances, especially if your operations rely heavily on these roles.
Understanding evolving city and state labor and wage regulations is a feat for any restaurant owner. In particular, restaurant minimum wage regulations can be complex, as they often include provisions for tipped employees, where the minimum serving wage might differfrom the standard minimum wage. Determining the next steps to ensure your business and employees are set up for success can be a whole extra hurdle. To make upcoming changes like these easier on your business, however, exploring innovative solutions such as dynamic pricing strategies to optimize revenue and keeping track of all your business expenses as you launch, run, and grow can put you in a stronger, more resilient position for the future.
