Sky Valley business owners respond to new minimum wage

The new year brought new challenges for local business owners faced with increased labor costs stemming from the implementation of Initiative 1433, a minimum wage increase passed by Washington voters in November.

Also referred to as the fair labor standards initiative, I-1433 raises minimum wage in the state to $13.50 per hour by 2020 and mandates that employers provide employees with paid sick leave. The hourly wage increase is incremental, jumping from $9.47 to $11 an hour on Jan. 1.

It will increase to $11.50 in 2018, then $12 in 2019, and finally $13.50 in 2020. After that, adjustments to the minimum wage will be determined based on the rate of inflation. In addition to higher wages, workers will start earning one hour of sick leave for every 40 hours worked in 2018.   

More than 57 percent of Snohomish County voters approved the initiative.

According to I-1433 advocacy group Raise Up Washington, the increase in minimum wage will drive economic development and create more jobs. The idea behind the boost is that increased disposable income in communities will contribute to greater purchasing power, spurring economic growth. As people earn more money, they will also spend more, the Raise Up Washington website states. 

But for local business owners, the initial outlay for the increased cost of labor was immediate and substantial. Any employee earning minimum wage as of Jan. 1 received a $1.53-an-hour raise to meet the new mandate.

The hike had a dramatic impact on Tuscano’s Italian Kitchen owner Scott Perry’s labor costs. A restaurateur for 31 years, Perry founded Canyons Restaurant in the ‘90s, a successful dining establishment with locations in Bothell, Mountlake Terrace, Redmond and formerly in Monroe. In 2010, Perry rebranded the Monroe Canyons and created Tuscano’s, to stay competitive in a lean market.

Perry employs between 45-50 people, including hosts, servers, bartenders and kitchen staff. In addition to raising his minimum wage employees, Perry said he was compelled to raise employees who were already making $11 an hour or more, because it didn’t seem right to leave them out. 

As a result, his payroll for January will be $8,000 more than it was in December. And that’s just the beginning, Perry said. Costs jump again in 2018, and he’ll be required to provide paid sick leave. 

Perry’s perception is that people didn’t consider all the repercussions of implementing such a broad, across-the-board policy. It was an emotional, feel-good sort of vote, but now business owners are scrambling to come up with ways to absorb the additional expense, he said. 

“We all want people to make more money. There’s no one in my business that doesn’t want people to make more money,” Perry said. “That’s why we work really hard at running a very good business and why we’re here managing it, because I want my servers to work for a well-managed company.”

Perry has had to implement cost-saving measures, including price increases, reductions in staff time and charging for refills of its formerly free focaccia bread. It comes down to basic math, he said.

Based on very rough accounting for the new hourly wage, plus payroll taxes, shaving off one hour a day in payroll equates to a savings of roughly $4,700 a year, Perry said. The more hours he can cut from the payroll, the more money he saves.

“That means eliminating bodies, and it breaks my heart because this is a place where people get their start,” Perry said.

Perry worries the number of available minimum wage starter jobs will decline as a result of the higher wage. One of the most rewarding aspects of his business, he said, has been the opportunity to watch his young employees develop their communication and people skills while learning accountability and responsibility.  

“It’s amazing,” Perry said. “It’s just been a blessing to me for all these years to watch these young people mature and grow, and now we’re not going to be looking to hire as many 16- and 17-year-olds.”

Perry gives back to the community in a multitude of ways, from supporting community members during times of tragedy and loss to feeding hungry students to supporting residents of a nearby women’s shelter.

“This is choking out my ability to do things like that, which we love to do,” Perry said, “because it’s not all about the money you make. It’s about what you do.”

Perry said he can weather the storm, but he is fearful for other small business owners. Large corporations might be able to absorb these kinds of increases, he said, but it is more difficult for small, independently owned businesses.

“It’s so hard anyway for entrepreneurs,” Perry said. “There are so many challenges and unknowns.”

Ben Franklin Crafts and Frame Shop owner Adrian Taylor has been in management for 60 years, with more than 40 years spent as a business owner. In that time, he’s never been faced with such a significant hike in labor costs, he said. He was immediately challenged by tough decisions, including layoffs, reductions in hours and careful analysis of how to stay profitable and still competitive.

Taylor opened the Monroe Ben Franklin store in 1975. It employs between 50-60 people, often a first job for a number of Sky Valley youth.

Two things have started to happen, Taylor said.

“One, we have to reduce the number of employees that are in the store at any one time,” he said. “Secondly, we have to look at ways of improving our profitability in other areas.”

Similar to Perry, Taylor’s costs climbed even more since he didn’t feel it was right to only raise his minimum wage employees. He couldn’t offer anything close to $1.50, he said, but the hourly wage for employees who were already at or above $11 an hour had to be adjusted as well.

Taylor said the challenge at a store like Ben Franklin is that it’s a service-based store. The extensive level of hands-on customer service is what sets them apart from other craft stores, he said. Customers come to the store because they want to know how to do things, Taylor said, and his staff can show them.

“There’s no way we can absorb that cost without cutting down on people, and that’s hard,” Taylor said.  “We’ve got people that have been with us a long time, and it’s tough to tell them we just don’t have the hours.”

For Sahara Pizza Monroe owner Bridgette Tuttle, it comes down to numbers, plain and simple. Tuttle purchased Sahara last year, after serving as the manager for more than four years.

Tuttle employs roughly 22 people, mostly youth 17-21. 

Tuttle worked through the problem using brute force and a calculator.

“Menu prices are not arbitrary,” Tuttle said. “They’re based on a formula.”

The formula doesn’t include a lot of guesswork. Tuttle uses sales projections for each night of the week based on previous history. Of the total estimated sales, 35 percent pays her food expenses, with 25 percent dedicated to labor. The remaining 40 percent pays rent, business costs, insurance, permits, marketing, equipment and all other incidentals. Any time her labor cost begins to edge its way over that 25 percent benchmark, it is costing her money to operate her restaurant.

It’s been tedious to strike a balance between reductions in staff time and maintaining a good customer experience, Tuttle said. She might be able to drive labor costs down to an acceptable range, she said, but if it results in poor customer service, the restaurant still loses.  

Tuttle decided against providing raises to staff already making $11 an hour or more, so she is working to develop a bonus system that provides incentives to employees that help keep labor costs down. A person on salary might offer to stay and handle phones while allowing an hourly staffer to leave earlier, which could make them eligible for a bonus if labor was driven down sufficiently.

Tuttle has also created a new dine-in-only menu to help increase revenue by enhancing what she offers. Pizza may be a one-night-a-week indulgence for some, she said, but people can always stop by for a locally made craft brew, appetizer, salad or homemade dessert made exclusively for Sahara by Suzabelle’s owner Sue Whitfield. The new dessert menu is completely custom, she said.

Tuttle sought to find a positive side to what has been a stressful situation.

“It could come out good for us in the sense that, if jobs are harder to come by, then you’re able to raise the bar on the applicants,” Tuttle said. “There has to be some kind of silver lining.”