Traveling across the state the last 18 months and meeting with our members and others in the hospitality industry, one issue has continued to dominate the discussions: labor shortage.
Oregon’s economic growth is outpacing the rest of the country, people are moving here and visiting here in record numbers and unemployment is extremely low. Those factors are all contributing to fewer people seeking employment or looking to change jobs or companies.
But in Oregon, we are also experiencing the consequences of recent regulations and laws passed making it difficult for businesses, small and large, to continue to grow, expand or even survive.
In the last two years, Oregon’s legislature has passed an annual minimum wage increase, paid sick leave law, scheduling law (the first state in the country to do so) and implemented a mandatory retirement savings plan administered by the State. Alone, these laws and regulations would be difficult to adapt to and implement. Taken together, they have challenged many businesses to find new and different ways to adjust to so much regulation so quickly.
To make matters worse, in Oregon, like seven other states, there is no tip credit for restaurants with servers. What this means is that unlike 43 other states, Oregon pays its servers at least the minimum wage plus tips - with many restaurants paying above minimum wage. Unfortunately, without a tip credit and with increasing minimum wage hikes annually, Oregon restaurants are left with little choice but to raise prices. Restaurants already have razor-thin margins; 95% of every dollar taken in by restaurants, on average, goes into the customers’ experience through food costs, labor costs or operating costs, so employers have few options. But as prices increase, a customer’s check increases and tips increase, raising wages even higher for servers and bartenders.
Finally, the U.S. Department of Labor changed a rule from the Obama Administration disallowing tip pooling with the back of the house employees like cooks and dishwashers in states without a tip credit. The rule previously allowed for non-tip credit states like Oregon to utilize tip pooling to help with the wage inequity between front of the house and back of the house. Surveys indicate more than half of customers in full-service restaurants believe the tip is already being shared among all staff.
As labor costs increase and a scarcity of labor continues to persist, employers will need to look for innovative ways to solve those problems.
Some businesses are eliminating the need for “brick and mortar” locations and are moving to online stores. Some restaurants have moved from full-service to counter-service, cutting down on the number of employees needed.
Another way has been the use of technology. McDonald’s has announced self-order kiosks for customers to use when ordering, robots can now be used to deliver coffee and towels to hotel guests, and some full-service restaurants are using tableside tablets to allow customers to not only order and pay for food but play games as well.
A recent report from the Portland Business Alliance notes that automation is a bigger threat to foodservice and accommodation jobs which are at a higher risk than healthcare professionals. Certain geographic areas, especially in rural Oregon, are also at higher risk of losing jobs to automation.
But the news is not all gloomy. Steve Brown, a futurist, speaking at the recent Oregon Leadership Summit noted the highest category of job growth is “Other” and went on to say there are jobs in the future we haven’t even created yet and ones that will be created because of technology. Automation and robotics will likely create new jobs for the industry that have them working alongside robots.
For every kiosk or tablet used, there will need to be someone to manufacture new ones, repair existing ones and write the software for the programs. Robots may be used to deliver towels, but someone will still need to put the towels in the robot’s “hands” and keep up the maintenance.
Many of these technological solutions will still need human interaction. Customers will still want to talk with the person in charge when they have a complaint or personally pass along a compliment to the chef.
Technology or automation and people can work together to make sure we still provide customers with what they want to keep them coming back.
Update: Thanks to lodging operators and tourism partners who mobilized with ORLA to share their concerns, the Umatilla County Commissioners decided against pursuing a lodging tax increase. Your efforts made a difference!
Umatilla County is considering a new Transient Lodging Tax of 2% on all overnight lodging facilities. ORLA submitted a letter to the Board of Commissioners asking for a delay in considering the new tax until appropriate communications can take place with their partners operating these lodging facilities. We do not feel an adequate amount of time to fully vet the need for a new tax was given.
ORLA encourages lodging operators to provide comment on the County’s plan and attend one of the following meetings where this plan will be discussed:
Thursday, Dec. 7, 2018 @7:30 a.m.
Nookies, 125 N. First, Hermiston
Friday, Dec. 8, 2018 @ 10:30 a.m.
Umatilla County Courthouse, Room 114
216 SE 4th St., Pendleton
Industry members are encouraged to attend a meeting and/ or sharing your comments / concerns with County Commissioners on this proposal.
We’re Not Convinced Lodging Operators Want A County TLT
To date, there is no evidence that lodging operators are asking Umatilla County to assist them in growing their revenue and their bottom line by implementing this new tax. We question the need for the tax to be considered in the first place.
For questions, contact Greg Astley, Director of Government Affairs.
Over the course of the past few years, our professional staff at the Oregon Restaurant & Lodging Association has traveled around the state holding regional meetings with Oregon's small businesses operating within the hospitality industry. As a result of those experiences we know firsthand the degree to which our small businesses feel challenged by the United States Department of Labor's 2011 rule.
As costs rise within restaurant operations, Oregon's restaurants must in turn raise prices. The result of those realities is a growing disparity between Oregon's front-of-the-house workers and back-of-the-house workers. Many operators are paying back-of-the-house workers at rates of $15-17 an hour given the marketplace demand for those positions. The front-of-the-house is typically making Oregon's minimum wage plus tip income which can result in an hourly wage of $30-$50 an hour and sometimes more. We routinely receive reports that front-of-the-house workers can make as much as three times the wage as those working in the back-of-the-house.
In Oregon, the minimum wage will continue to rise every year on July 1 through the year 2022. What we're hearing from our industry is that something must be done to stop the regulatory forces that are driving wages and people further away from each other within the walls of our restaurants. If something is not done our wage gap between workers who are all working together to service the customer will continue to grow and result in cultural, workforce, and small business challenges that escalate and make Oregon a more difficult place to operate a small business.
We know the average small business restaurant in our great country makes 2-5% profit meaning for every $1 million in sales, the restaurant owner makes $20,000 - $50,000 in profit. Our industry operates in one of the slimmest profitability environments in the country. At the same time, restaurants in our country provide one of the best places to build skills and values in a professional setting. Many restaurant operators are proud to provide Americans with their first job or their second chance. They pave the way for career building opportunities and provide employees with the opportunity to build a strong work ethic, a keen attention to detail, and the ability to hone their interpersonal skills.
Rescinding the 2011 rule would be a decision to sustain the viability of Oregon's small business full service restaurants. We know already that if this were to happen, many operators would implement a modest tip pooling arrangement as the minimum wage continues to go up for Oregon's front of the house workers who aren't making minimum wage. As the minimum wage goes up for servers (even though they aren't making anywhere close to minimum wage) operators would have the ability to modestly increase the tip pool with back of the house workers to counteract the server wage increase. Those actions can create higher wages for Oregon's very crucial back of the house workers, keep Oregon's servers at significant wages, and allow the restaurant operator to continue pursuing their goal of 2-5% profit on overall sales.
There has been significant impacts on Oregon's restaurants as a result of the 2011 rule and we hope to have the opportunity to assist our small business operators in their efforts to build a culture that showcases the value of all their workers through the payment of more balanced wages.
For questions, contact Jason Brandt, President & CEO, or Greg Astley, Director of Government Affairs, at 503.682.4422.