Minimum Wage and Overtime: Getting away from the Plain Vanilla debate

The intensity level of the debate on whether or not to raise minimum wage and by how much has reached epic levels. Simply subscribe to “minimum wage” in Google Alerts and every hour that follows, literally, you will receive between 2-5 new articles from across the country – and the globe – with equally fervent arguments both for and against an increase. I scratch my head as I read the same points being spun by both sides over and over again. Everyone claiming check mate on the other side. Very rarely do we see or hear any new insight whatsoever that hasn’t already been spewed a hundred times over or more. Sadly, I don’t think tonight’s State of the Union will be any different – I would love to be wrong.

After many years of running a multi-unit restaurant chain that I started with partners back in 1997, I’ve given this important topic critical thought nearly every day and night since we began. Those who know me even peripherally know that the topic of how we treat and compensate low-wage workers is the aspect of the restaurant business about which I am most passionate.

With that in mind, I offer a couple of innovative (I hope) policy suggestions that I and many other business owners and low wage employees, alike, believe would be a positive game-changer for both the quality of life of the average hourly worker and the long-term economics of most – admittedly not all - well-run businesses.image

First, the minimum wage can no longer be a universal, one-size-fits-all number. A part-time 16 or 18-year old working a couple of times per week or for the summer is very different than a committed 23-year old who works full-time, takes on increasing responsibility and aspires to a career in business. Comparing those teenagers to an experienced 35-year old with a family is a non-starter. Employers should have the legal right to pay less, with the obvious ability to pay more as earned by individual employees.  In addition to age, fellow restaurant entrepreneur and friend RJ Dourney firmly believes in the value of a temporary training wage, say 90 days, which would be incredibly helpful to businesses during the riskiest stage of an unproven employee’s tenure.  RJ also maintains that a “hard-to-hire” wage would give qualifying employees (ex-offenders, for example) a far better chance at being hired back into the workforce.  Without these kinds of strategic exemptions, a single, one-size-fits-all minimum wage will perpetually meet with the same vicious resistance it encounters today.*

Second, and far more controversial but incredibly important, we must (gulp) meaningfully reduce the 1.5x overtime pay rule. That’s right. This generally unquestioned “pay ceiling” is causing more harm to our low wage work force and damage to our economy and the culture of our businesses than most people have ever imagined. To ensure we’re speaking the same language here, if an employee’s normal wage is $16 per hour, after 40 hours in any given week she would begin earning $24 for every additional hour worked that week. That’s a huge jump and even most well-intentioned employers simply can’t or won’t do it… they’d be happier personally escorting their people to their second job. And that, the now ubiquitous second job, by the way, is the unintended but disastrous effect of the current overtime penalty. Millions of workers are forced to work two and even three jobs simply because their main employer won’t let them stay on for over 40 hours. Imagine what would happen if we dropped the 1.5x penalty to 1.25x (like in Japan) or even lower, perhaps 1.1x or 1.2x.  With a lower overtime penalty, more employers would keep their best people on beyond 40 hours, largely removing the need for second jobs. Employees would actually earn more while working a few less hours, but most importantly they’d be focused on one company, not two (or three). They’d be better trained for that job and would become even more valuable to their companies, and their companies would benefit as a result… better execution, better customer service, more loyalty. Employees’ lives would be so much more efficient, no longer having to manage multiple ever-changing schedules, cultures, uniforms, and rules of engagement.  Perhaps, and this is a practical stretch right now but certainly possible down the road, with the few extra hours of new found “free” time each week they could go back to school. Overtime policies need to be revised. We will all benefit.  

As for the endless “plain vanilla” debates, in addition to the above, I do believe that the “standard” minimum wage for most workers in the US needs to be increased to at least $10 per hour (and perhaps less for teens and PT younger workers, trainees, and “hard to hires”).  I’d personally prefer higher, especially in cities like Boston.  But at least this $10 figure would represent an approximate “catch-up” provision and retroactively tie minimum wage to inflation for the past 40 years. Going forward the minimum wage should be increased annually at the same rate as inflation. This takes us away from arbitrary increases and ties minimum wage adjustments somewhat to an economy-centric metric.  However, to repeat, these adjustments alone won’t get us far, if anywhere, for very long. 

I will admit that my experience is limited to my 17 years of building and running Boloco. I don’t have all of the answers. But I do know something without a doubt… whenever I pause to look back, I realize that every time we stopped dangling the so-called burrito carrot, just out of reach of our people, and instead, paid it forward, fed them the burrito carrot and started treating them like real business partners, our business always improved substantially.  Especially back in 2001, we did something that changed everything for our company.  After some pretty intense debate, we increased the pay of every person in the company to a minimum of $8.00 per hour when the minimum wage was only $5.15. For us, it was an immediate 30-40% increase across the board – we also increased the pay of many deserving people who were already making above $8 as well. It was a risky move, and we had no proof it would be anything other than a giveaway and a massive hit to the bottom-line.  Coincidence or not, the next year, and the five years that followed (until the difficult recession of 2008-2009), saw record sales and profits which earned us the right to start growing again and even find new investors in 2007 to help us expand outside of Boston.  When we made similar moves again in 2010 and 2011, we saw similar and remarkable results for the following 24-36 months. We’ve never regretted taking financial risk on behalf of our people and our performance.  Any setbacks were largely a result of senior management’s deficiencies, starting with yours truly while CEO.

We must change our mindset to reflect a deep desire to improve the lives and futures of people working in low paying positions and build 21st century business models that do so. Our employees deserve it, they certainly earn it, we can most definitely do it, and I am convinced from my own experience that we will all benefit as a result.

- John Pepper

* Note that the Fair Labor Standards Act established Youth Minimum Wage at $4.25 per hour in 7/2008.  I called US Dept of Labor to verify since no business I know in MA or elsewhere knows or makes use of this exemption to the “normal” minimum wage. They picked up and verified within minutes. Unfortunately, after 15 minutes on hold with MA Dept of Labor, it forced me to leave a message… my hunch is that state law trumps the national provision for youth.  Too bad, in my opinion.  To be continued…

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