Restaurants Are Spending Less on Payroll Despite Minimum Wage Hikes

While new minimum wage laws have gone into effect across the country, many restaurants are actually spending less on payroll today than a few years ago.

A new Square restaurant report revealed that while full-service eateries and bars saw payroll costs grow amid the minimum wage hikes, cafes and quick service restaurants experienced the opposite result.

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Since 2017, average hourly earnings for restaurant workers climbed 66 percent, but for cafes and quick service places, payroll costs have been on the decline. For quick service restaurants generally, the report showed that payroll costs as a share of total revenue fell from roughly 36 percent to about 34 percent between 2019 and 2023, while cafes saw a drop from around 40 percent to below 39 percent.

That was in stark contrast to the bar and full-service sectors, which for the same 2019 to 2023 period, saw costs climb roughly 1 percent and 3 percent, respectively.

"Bars and full-service restaurants rely more on higher-skilled employees who perform hard-to-automate tasks, which increases payroll costs," Ming-Tai Huh, the head of restaurants at Square, said in the report. "It's the exact opposite situation for QSRs and cafes. These sellers can more easily use technology to automate and streamline operations, helping lower operating costs for front and back of house."

Minimum Wage Nationwide

The cost changes are occurring as cities and states adopt their own rules to keep restaurant workers paid fairly. So far, 22 states have raised the minimum wage within the past year, with more state and local governments working on similar bills to phase out the tip credit, the Square report found.

Chicago approved a new law ending the tip credit last year, which ended up raising the minimum wage for tipped workers from $9 to $15.80 for businesses with 21 or more workers. The changes go into effect on July 1 for the first increase until it's fully $15.80 by 2028.

Seattle took a similar step, boosting its gig worker minimum wage to $26 per hour before mileage and tips via its previous PayUp law. However, many residents complained about the fees and avoided apps like DoorDash and Uber Eats because of the extra costs.

DoorDash reported 300,000 fewer orders within Seattle in the past three months and has supported new measures that would reverse the law's rules so consumers do not feel as much of the pricing sting.

"It's painfully clear from listening to Dashers, merchants and consumers that this new law simply isn't working," DoorDash said in a statement at the time. "The latest numbers show that the longer this law remains in place, the more harm it causes.

In Ohio, Republican Senator Louis "Bill" Blessing is also looking to raise the state's minimum wage to $15 by 2028.

The state has fallen behind many others, as it pays $10.45 an hour for non-tipped workers at a minimum. Tipped employees may only be paid $5.25 per hour, however.

If the $15 minimum wage law goes into effect, roughly 1.6 million Ohio workers are anticipated to be affected.

Pennsylvania saw a similar proposal from Democratic State Senator Christine Tartaglione. Under the law, the state's minimum wage would go up to $20 an hour starting July 1, with a cost-of-living adjustment every five years.

Currently, Pennsylvania still observes the federal minimum wage requirement at just $7.25.

"It's anti-competitive and it's hurting our workers," Pennsylvania Governor Josh Shapiro said earlier this year. "Pennsylvania workers living in border counties would rather drive into another state for work so they can earn a higher wage than take a job at home."