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Tipping point: Colorado restaurants reeling from COVID-19 pandemic face new wage hike

Pat Ferrier
Fort Collins Coloradoan

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Colorado's minimum wage went up 32 cents an hour on Friday, with restaurants holding on by their fingernails during the COVID-19 pandemic saying it may be the last straw. 

The increase could prove catastrophic to restaurants already on the verge of closure, said Sonia Riggs, CEO of the Colorado Restaurant Association.

"What may seem like a small amount will actually take a significant toll on restaurants who are already struggling to make rent, keep their employees on their payroll and keep their doors open even in the short term," she said. 

As part of a constitutional mandate, the state's hourly minimum wage increases every year and is adjusted for inflation. On Jan. 1, it went up 2.7%, from $12 an hour to $12.32 for most workers and from $8.98 to $9.30 for those who receive tips on top of their hourly pay, including restaurant servers and bartenders.

In addition to the constitutional mandate, in 2016, Colorado voters approved a ballot measure to increase the state's minimum wage to $12 by 2020.

For the past four years, the state has played catch-up, raising the minimum wage 90 cents a year until it reached $12 in 2020. From now on, the wage increase will be tied to inflation. That's why this year's increase is 2.7%.

The minimum wage for tipped employees in Colorado is designed to be $3.02 below the minimum wage of nontipped employees. If the tipped employee doesn't make up the difference, the employer is responsible for paying the difference — which rarely, if ever, happens, according to the Colorado Restaurant Association.

Servers can make an average of $25 to $35 an hour on good nights when tips are factored in, said Kevin Grossi, chef and owner of The Regional, 130 S. Mason St. in Fort Collins.

Owner Kevin Grossi shows chef Patrick Romsa how to cut up a chicken at The Regional in Fort Collins, Colo. on Wednesday, Dec. 30, 2020. The state's hourly minimum wage rose again with the new year, part of a constitutional mandate to annually adjust the rate for inflation.

"I find it a little ridiculous ... servers are already averaging quite a bit," Grossi said. "We will roll with the punches ... labor is obviously a priority and we need to make it happen." 

For those working 40 hours a week, the raise amounts to $12.80 more per week, or $666 a year per full-time employee. 

The increase will cost Grossi "a few hundred dollars a week" and he said he'll likely ask servers to share more of their tip money with kitchen staff — which already makes more than minimum wage and won't automatically get a raise — to put more money in their pockets as well.

"Every year that we do an increase ... we push closer to the fact that the tipping model has never been fair," Grossi said. 

Chef Patrick Romsa cuts up a chicken at The Regional in Fort Collins, Colo. on Wednesday, Dec. 30, 2020. The state's hourly minimum wage rose again with the new year, part of a constitutional mandate to annually adjust the rate for inflation.

According to CRA's July wage survey, 97% of restaurants pay their back-of-house staff more than minimum wage: an average of $16.93 per hour. 

Taking a bite out of the bottom line

Surviving the pandemic is already a stretch for some restaurants without adding pay hikes on top of it, said Riggs of the Colorado Restaurant Association. "It's going to be difficult, without question, as any additional cost is difficult for restaurants to absorb right now," she said. 

Sonny Lubick Steakhouse, the underground restaurant at 115 S. College Ave., closed temporarily in late November when COVID-19 cases soared in Larimer County and indoor dining was again prohibited. It won't reopen until it can seat 50% of its capacity, General Manager TR Shuttleworth said. 

"Anytime you have to pay employees more, it takes a bite out of the bottom line," Shuttleworth said. "But, in order to keep everybody above sea level, we do what we have to do."

In good times, restaurants make 3% to 5% profit on average, far less than most other companies, said Riggs. "They spend 95% to 97% of every dollar earned on the people, place and food — so any drop in revenue is catastrophic."

"It's just another squeeze on restaurants," said Nick Doyle, owner of Nick's Italian, 1100 S. College Ave. Past wage increases have cost him nearly $40,000 a year, he said.

This year's bump, if it were normal times, would have cost him roughly $20,000. Currently, Nick's is operating with minimal staff, many of whom are family members. The restaurant has pared down its menu and has set up limited seating on its patio. 

Many restaurant owners argue servers make much more than minimum wage when tips are factored in. Of course, how much more depends on the size of the individual check and type of restaurant. 

Servers at fine dining restaurants like Sonny Lubick Steakhouse where dinner entrees range from $30 to $60, would make more in tips per night than those working at IHOP, where a family "to go" meal costs $25.

"From a business owner's perspective it's frustrating," said Kat Reeves, co-owner of Bistro Nautile, formerly Fish, 150 W. Oak St. "We aren't making money and we're subsisting off (COVID-related) aid, which is a terrible place to be and humbling after so many years in business." 

Her servers today are paid the $12 standard minimum wage, not the tipped wage of $8.98, she said due to the pandemic, when customers — and tips — have been in short supply.

Ordinarily, her servers "make great tips and a very livable wage," she said. Bistro Nautile's servers share tips with kitchen staff, who also make more than minimum wage, Reeves said. 

With the 32-cent an hour increase in 2021, Colorado's minimum wage will have gone up $4.01 since 2016, when it was $8.31. 

The Colorado Restaurant Association doesn't have a good ballpark number for how much the minimum wage increase will cost its members, "but it's reasonable to say most restaurants will face an additional thousands of dollars in labor costs," Riggs said.

Faster food, higher minimum  

Workers at fast-food restaurants fall under the standard minimum wage laws because they don't receive tips, but most already make more than the minimum. 

An employee checks an order in the kitchen at Culver's in Fort Collins, Colo. on Wednesday, Dec. 30, 2020. The state's hourly minimum wage rose again with the new year, part of a constitutional mandate to annually adjust the rate for inflation.

About 75% of Jason Stentz's 90 employees at Culver's in Fort Collins and Longmont make more than minimum. Still, there's an expectation that when the minimum wage goes up, they'll get a raise, too, "and that's hard for us to accomplish," he said.

Last year's 90-cent raise cost Stentz about $50,000; he estimates this year's raise will cost between $15,000 and $20,000 between his restaurants. It's an expense he's tried to offset by limiting or decreasing hours and focusing on internal cost controls without hurting the customer experience, he said. 

"We aren't willing to sacrifice the experience of our guests by decreasing the amount of coverage and efficiency that we provide," he said. "What we can't control we have to absorb. It eats away at our profitability."

Culver's popular drive-thru has helped the restaurant stay afloat, ending the year about even with last year's sales.

An employee checks an order in the kitchen at Culver's in Fort Collins, Colo. on Wednesday, Dec. 30, 2020. The state's hourly minimum wage rose again with the new year, part of a constitutional mandate to annually adjust the rate for inflation.

"I'm blessed to have a drive-thru," Stentz said. "I would imagine if we weren't positioned like we are ... if we were losing revenue, it would make it even harder." 

He said he's tried to establish Culver's as an employer of choice and pays well above minimum wage. "It wasn't a huge adjustment getting to $12 because we always paid people over that, but it makes it really hard for us now to separate ourselves as an employer of choice now because minimum wage is so much higher." 

Denver goes its own way

While the state mandates a minimum wage, the Colorado legislature last year repealed a 1999 state law blocking cities and towns from adopting their own higher minimum wage.  

Fort Collins considered forming a committee to study such a move but the effort went nowhere.  

While Fort Collins didn't act, Denver raised its minimum wage by $1.92, to $14.77 as of Jan. 1. Hundreds of restaurants asked the city to delay the increase, but Denver City Council declined, Riggs said. 

In a survey conducted by the CRA before the pandemic, 20% of restaurants said the increase would force them to consider closing and nearly 60% reported they'd have to reduce staff. 

Denver restaurants reported this next increase would cost them an average of $54,000 more in labor costs annually, while 18% of restaurants reported their labor costs would go up more than $100,000 annually, Riggs said.

The annual pay for a full-time worker making the statewide minimum wage would be $25,625, well below Fort Collins' Area Median Income of $65,900 for a single person, according to the U.S. Department of Housing and Urban Development.  

A full-time restaurant worker in Denver will now make $30,722, plus tips. 

"It is very likely that this wage hike will be the straw that breaks the camel's back for many restaurants," Riggs said. "In Denver it will be much worse."

In September, 20% of restaurants reported that this increase would force them to consider closing, she said. That was before indoor dining closures went into effect in Denver — now 60% of restaurants are reporting they will consider closing permanently within three months, and that's without considering the wage hike. 

"Restaurants typically employ 10% of Colorado’s workforce — so many people are losing the jobs that they love and are teaching them valuable life skills at the same time," she said.

Colorado minimum wage

Non-tipped

2020: $12

2021:$12.32

Tipped

2020: $8.98

2021: $9.30

Pat Ferrier is a senior reporter covering business, health care and growth issues in Northern Colorado. Contact her at patferrier@coloradoan.com. Please support her work and that of other Coloradoan journalists by purchasing a subscription today.