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    What Rising Minimum Wages and Gig Competition Mean for Restaurants

  • The good news is that high wages aren’t the only strategy to keep workers around.

    istockphoto / xavierarnau
    Pay will always be the most influential factor in attracting and retaining talent. But it doesn’t mean that other practices and other benefits don’t play a role.

    The average American minimum wage has reached a historic peak, and there’s been plenty of chatter that more growth may be coming.

    While the federal rate has remained stagnant at $7.25 for 10 years, some individual states and municipalities have taken it upon themselves to establish higher minimum wage levels than federal law demands. After years of no increases, the minimum wage has declined by 16 percent in real value terms over the last decade thanks to inflation and a rising cost of living.

    For example, New York recently raised its minimum wage to $11.10, while Washington now requires a $12 minimum wage. Cities like San Francisco and Seattle have made much-publicized moves to gradually increase the minimum wage, with San Francisco’s $15.59 minimum wage going into effect in July.

    READ MORE: What is minimum wage really doing to the restaurant industry?

    While rising minimum wages mean higher costs for employers, there may also be secondary impacts on employee hiring and retention that will benefit employers in certain ways. Since most gig economy workers are designated as contractors, not employees, minimum wage requirements do not apply to them.

    Because of this, workers searching for the highest available pay rates may choose traditional employment options rather than work in the gig economy. And in response, gig and contract companies may start considering—or even be forced to consider—changing their pay scales to better maximize their talent pipeline.

    In quick service, where margins are often slim, the prospect of raising wages—whether proactively as a tool for attracting and retaining talent, or in response to new legal requirements—may prove daunting. But the good news is that high wages aren’t the only strategy to keep workers around.

    The struggle for talent in the era of gig work

    Reliance upon hourly workers typically means high turnover, a challenge which has only grown with the increasing opportunity and flexibility available to workers in the gig economy. QSR leaders have never before had more incentive to reduce high turnover, since some research has suggested that replacing an hourly employee can cost between $2,000 and $7,000 — typically 10–20 percent of that worker’s annual salary.

    The availability of gig work has introduced many opportunities to work on one’s own time and be one’s own boss. As apps that provide ridesharing, grocery delivery, dog walking and other services have popped up, talent that otherwise would have sought out traditional hourly employment in the food or retail industries now flocks to contract-based gig work.

    Beyond state and local policy changes, various industries have also reacted to the gig economy’s appeal by upping wages. Bank of America recently announced that wages for its hourly positions now start at $20, and Target upped its hourly pay to at least $13. These are national moves that will likely impact hiring and retention in areas where federal law still specifies the minimum wage, since they introduce the largest gaps compared to the minimum wage in such locales. In response, many workers may give up the flexibility and independence of gig work to earn more income with these kinds of companies.

    To date, quick-service restaurant brands and operators have largely refrained from voluntary wage raises to keep up with these trends. Since competition for customers is high, and labor costs make up a large part of the business’s overall cost structure, many would say that it’s simply not an option. But there are other avenues quick-serves can turn to to present themselves as an attractive option to talent.

    How can you make quick-service restaurant positions more appealing?

    In the age of such fierce competition for labor, quick-serves fight to hire and retain talent doesn’t have to rely on raised wages alone. Here are some alternative steps that may induce restaurant workers to prioritize traditional hourly employment over gig work:

    Create stronger, more detailed career paths: A progress map that shows an employee where their career can go within the company provides powerful knowledge and motivation. It should articulate policies for how employees can move into different roles and can increase the accessibility of progression by introducing additional levels of role responsibility within a given job category. Doing so can allow an employer to show employees the potential for earlier opportunities for skill growth, promotion and advancement. Providing shorter timelines between more steps on the progression path for every employee gives employers a way to make progress seem more attainable without ruining the cost structure. It can also make employees more likely to treat their role within a quick-serve as a career, and not just a temporary job.

    Apply analytics: Many restaurant owner-operators and franchisees don’t have detailed employee analytics immediately on hand, or they aren’t able to carve out the time and insight to translate implications into operational decisions. At the same time, corporate parent companies may not have the localized, operationally detailed perspective that enables managers to translate data into better hiring or higher retention. For owners who can collect or acquire access to data about employee satisfaction, exit interviews, and other key indicators of retention practice success, the data can help to affect managerial practices, in-store environment variables and other non-pay-related details, in addition to things like pay, bonuses and benefits. Ultimately, making any decisions about both your employees’ experience and their compensation is best done with data on your side.

    Introduce new benefits: Many quick-service restaurant owners have room to offer more creative benefits (outside of pay) to their hourly employees, and a host of newly-launched technology companies make offering certain benefits easier, cheaper, and less administratively burdensome than ever before. Especially in an environment where pay levels are similar across different jobs, perks and benefits may prove to be differentiating factors that increase retention. The capability to contract with third-party companies to provide items like commuter assistance for public transportation, access to training programs and material (e.g. Udemy), tuition assistance, partnership discounts at local establishments such as grocery stores or gyms (e.g. Fond), even retirement savings programs (e.g. HumanInterest), are all more accessible than ever before. Some will prove to be cheaper and easier than simply providing raises to your employees, or may have an outsized benefit on retention as compared to providing the same dollar amount in the form of a raise in an environment where they can easily get the same pay elsewhere.

    Pay will always be the most influential factor in attracting and retaining talent. But it doesn’t mean that other practices and other benefits don’t play a role. In the current environment, especially for workers whose pay levels place them near the minimum wage level, you’ll need to find other ways to reward and retain those you hire. For quick-service restaurant leaders, it pays to take a creative approach in showing employees how they matter.

    Micah Rowland, COO, brings an extensive and far-reaching background to Fountain. Before joining the team last September, he worked at companies like Starbucks in branding and strategy and McKinsey’s business and economics research arm, McKinsey Global Institute (MGI), in labor and economics trends. Fountain has helped clients hire and onboard nearly one million applicants each month across 50 countries since its inception four years ago.