Guest MINDSETTER™ Elkhay: RI is the State that Wants to Kill the Golden Goose

Friday, March 06, 2015

Guest MINDSETTER™ John Elkhay

Rhode Island is well-known across the nation for its vibrant and thriving hospitality industry. We are one of the state's few bright spots - a top-five job creator that employs more than 65,000 people and one of the state's largest tax-generators. Our industry's economic impact represents millions of dollars in revenue to the state's coffers and to the local communities we serve via property tax, meals tax and other taxes and fees.

We are, indeed, Rhode Island's veritable Golden Goose. However, the state's legislature has proposed new bills that, if passed, have the ability to destroy everything that we, who choose to make our lives in this industry, have worked so hard to create.

House bill #5364 or the Minimum Wage - Gratuities bill is devastating. This bill not only seeks to remove the federal tip credit, but also propagates the misinformation that our industry pays employees just $2.89 per hour.

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The hospitality industry is NOT paying employees $2.89 per hour...every single business is mandated by federal and state law to pay all employees the current minimum wage (which will increase 11% next year) without exception, regardless of tips. The tip credit is just that, a credit that employers can use toward fulfilling the minimum wage requirement.

My six restaurants employ more than 200 people. I do not have a single tipped employee who makes just minimum wage, my employees makes significantly more per hour. On average, my staff makes $16 per hour for tipped employees. The tight labor market and fight for qualified employees forces us to pay employees much more than minimum wage.  An example of free market forces at work.

On the other end of that spectrum, last year my six restaurants netted a mere 2.3% profit. This equates to a little more than $200,000. If bill #5364 passes, it will cost me an additional $520,000 in labor costs alone. This means I will lose $320,000 per year. There is no way, I will work this hard to lose more than $300,000 per year.

Not only is our profit an extremely low percentage, but in this down economy, credit cards are used  much  more  frequently  as a method  of  payment,  up to  80% of the time.   In 2014 alone, I paid  $188,885 in  fees.

In addition to the extra labor expense that this bill would incur, Chow Fun Food Group would also be impacted by house bill #5363, specifically the 28-14.1-4 Prohibition Against Tip Pool legislation. 28-14.1-4 is already clearly defined by Federal Law in regards to what is legal and not legal (I have personal experience in this). 28-14.1-3 will cost our food group $40,000. We have no way of recouping this expense, yet gas stations are allowed to charge more for a credit card charged sale. We cannot charge staff for uniforms, breakage, theft or lack of productivity. As an industry we have been forced to offer health care to all of our employees, increase minimum wage, and have experienced a large increase in state liquor taxes.   How can we pass these expenses on continuously and stay in business?

If you find it hard to believe how our net profit is so low, let me explain what we are currently paying and being taxed on: based on our sales, the state received 8% in sales tax; the state collected employee income tax, pre-taxed alcohol, property tax, tangible property tax (end of the year tax on inventory, restaurant equipment, new chairs... and even paint!). Yes, we are taxed on any upgrades & improvements we make in our restaurants. And, there are other taxes and fees disguised as permits including a 13% tax on our total weekly payroll, we pay a fee for an "expansion of premises permit" each year for the privilege to serve food and beverages outdoors for seven months, we pay a liquor license renewal fee, litter permit, retail tax permit, valet permit, Providence Water Supply Board fees (yes, there is a tax imposed on us for making ice for our drinks), we also pay for a permit to serve dairy (ice cream and milk). Now, you begin to see the pattern and you can do the math.

Each Monday, I wake up with the pressure to earn more than $40,000 to cover my payroll alone, regardless of customer attendance due to weather or season.

Proponents of the bill often neglect the fact that in the last 20 years, not only have tips increased from 10% to 18%-20% or more of the check, but check averages have ballooned by more than 100%! Think about it, every time we are forced to raise our prices in order to combat skyrocketing food and beverage costs, utility costs, etc., the employees effectively get a raise.

I, along with my staff, work very hard to be successful in a recovering economy. If bill #5364 passes, it will without a doubt threaten the longevity of my business and the jobs of the more than 200 hardworking employees who choose to work for me.

Simply put, none of us can afford this bill. I urge you to fight bill #5364. It's not good for local business, job growth and creation; or for new business development...but, it's the most devastating to the more than 65,000 employees who choose to work in the hospitality industry.

I might add that the last election cycle, there was an air in Rhode Island of becoming more business friendly, people running on helping business from the Governor on down. This one bill alone would be so devastating in a time when promises were made to help businesses, not hurt them.

Don't kill the Golden Goose.

John Elkhay is the CEO of Chow Fun Food Group

EDITOR'S NOTE: A previous version of this story misidentified the source of drinking water as the Narragansett Bay Commission. The Narragansett Bay Commission "provides conveyance and treatment for the sanitary and commercial sewage" from restaurants. The Providence Water Supply Board is the supplier of drinking water.

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