Minimum wage increase: Business experts say ‘expect to see higher menu prices’ – NZ Herald

Expect to see higher menu prices.

That is what the Restaurant Association of New Zealand boss warns as the “ripple effect” of raising the minimum wage could mean consumers will ultimately pay the price.

A
local hospitality owner says they already pay “well above” the minimum wage as it is.

Prime Minister Chris Hipkins, who announced the wage rise earlier this month, says families need it more than ever as the cost of living rises.

Hipkins announced the adult minimum wage will be rising to $22.70 per hour from April 1, 2023 – an increase of $1.50 per hour from the current hourly rate of $21.20.

The training and starting-out minimum wages will also increase from $16.96 to $18.16 per hour.

The new minimum wage of $22.70 per hour means an employee who works 40 hours a week would earn an extra $60 each week before tax.

However, Restaurant Association of New Zealand chief executive Marisa Bidois said businesses have been under enormous pressure in the past few years dealing with the Covid-19 pandemic, recent weather events, and exponential food cost rises.

The minimum wage increase has a ripple effect, often pushing wages up within the entire business, Bidois said.

“We have had an increase of over 20 per cent in the minimum wage since 2020 – during some of the most challenging years our sector has faced. In our industry alone, a nine per cent increase in 12 months.”

Bidois said it also impacted the median wage required as part of the accredited employer visas.

“This will now increase to around $30 per hour, which means we will be paying even more for any overseas help we may need. This is despite a small exemption for our industry,” she said.

“With all of these rising costs, business owners will ultimately have to pass these costs on, so diners can expect to see higher menu prices.”

Nick Potts, co-owner of Solera Wine Bar and Saltwater Restaurant in Mount Maunganui, and Deckchair Cafe in Tauranga, said the industry already paid well above the minimum wage.

Potts, who had two employees on the current $21.20 minimum wage between the three restaurants, said he understood why the minimum wage was raised, however, there was potential for a “better system” to be used.

Employees on minimum wage were typically teenagers or backpackers working after school or on weekends and were therefore not likely to have rent or bills to pay, were just making a bit of pocket money and usually did odd jobs like washing dishes, he said.

So $22.70 to wash dishes would be better spent on employing another waiter or waitress part-time or fulltime.

“I think there should be award rates for people under 18. You can have a 15-, 16-, 17-year-old on different pay rates and that would work a lot better,” Potts said.

There could also, of course, be the “on-flow”.

“If you ask most people in the hospitality industry, we are all paying well above minimum wage. We are all paying waiters around about $24 and bartenders across the industry are about $28 to $30,” he said.

“We are paying them already substantially more than two years ago.”

So if fellow employees also requested a $1.50 per hour rise “that is where we hit huge problems”, Potts said.

“Basically we will have to say no. We just can’t afford to do that and that is where we start losing good staff and we are going to struggle to open the doors.

“It will be interesting to see if we do get that flow-on or not.”

If there was a flow-on effect, Potts said it was inevitable they would have to put up menu prices to help cover costs.

“Already with price rises and inflation, you will find most restaurants have not put up their prices nearly as much to reflect the price rise of the good that we are buying, particularly with food.

“We have seen over the last two or three years, if we pass those on to customers, we would almost be empty.

“But it is going to get to a point where we just have to. Because between labour going up and the cost of goods going up, our margins are just scrapped from nothing…”

The owner of El Mexicano Zapata Express in Rotorua, Eduardo Diaz, said the wage rise was going to affect hospitality “big-time”.

“If you have got 10 or 15 people working, that is another $1.50 per hour. If you times that by 40 that is a big increase.”

Diaz was not blaming the Government. “It is what it is, people need to keep up with the cost of living.”

But, he said, it meant they would have to pass on the costs somehow.

“We are quite conscientious. We pass it on only a little bit. We don’t abuse the fact,” Diaz said.

“But we have to pass it on because of not only the minimum wage going up but it is the cost of the produce going up too.

“We are paying $20 for a tray of eggs. Two months ago it was only $8.99. Oil before Covid-19 was $39 plus GST for a box of 20 litres, right now it is almost $80. Beans were $70 for a bag of beans, now it is $170 for a bag of beans. Rice has gone up, vegetables, meat… The wage increase is going to be felt for sure… I will feel the pinch. But it is more the price of the materials to make the food.”

Diaz said he had a few juniors who were paid above the $16.96 starting-out wage and he already paid people on the minimum wage above that.

“I have always looked after my workers. I know what it is like to live on the minimum wage. I know that people are doing it really tough and if we are doing okay at the restaurant why not share?”

‘Very quick increase’

Tauranga Business Chamber chief executive Matt Cowley said the minimum wage had increased more than 40 per cent in the last six years.

“That’s a very quick increase,” he said.

“I’m unsure who else would’ve received the same 40 per cent increase in that short period. Some unions want the minimum wage to equal the living wage, but as wages increase, the living wage goalpost also increases due to inflation.”

Cowley said everyone knew the minimum wage was going to increase, but not at seven per cent.

“Local employers have told me their budget for staff remuneration in 2023 is well below seven per cent increases, due to cooling income streams.”

The tier of employers currently on $22 to $24 an hour also want an increase, he said, which cascades to the next tiers as “everyone wants to be remunerated more for doing more senior or complex work”.

“It also increases suppliers and subcontractor costs, as well as food and transport. It doesn’t only impact their staff wages, but it increases costs across the board.”

It was the accumulation of “little and frequent tweaks” to the minimum wage rising – as well as the median wage for immigration processing – that were compounding the impacts on employers, he said.

Cowley said businesses will need to keep a close eye on their cashflow forecasting to factor in higher costs and cooling income as the year goes on.

“We encourage businesses to consider investing time with a suitable accountant who can help before a business gets into trouble.”

Rotorua Business Chamber chief executive Bryce Heard said there were few who would argue the minimum wage makes a comfortable living wage “because it does not”.

“The problem for business is that when it is raised, it raises the whole wage/salary structure right up the chain,” Heard said.

“This is because all jobs are scaled to a size and a wage/salary rate is struck for each job size. When you tinker with one level, you affect all levels.”

Heard said it was an easy sell for a government to raise the minimum wage, because it was businesses who pay for the resultant escalation of wage costs – not government.

“Government merely picks up extra PAYE from it. It also adds to inflation, as the employer has no choice but to pass on the extra costs in prices.”

Retail NZ chief executive Greg Harford said it had advocated directly to the Prime Minister, the Minister of Workplace Relations and Safety, the new Small Business Minister and to government officials on the impact any increase in the minimum wage will have on the retail sector.

They had asked for a hold in the increase, which didn’t happen.

“It is disappointing the impacts and concerns have not been heard,” Harford said.

The increase of $1.50 per hour to $22.70 will mean many retailers will over time review their product prices and limit opening hours, and it will inevitably mean consumers will pay more for products, he said.

“The impact will be most felt in small retail businesses who just do not have any more wiggle room, many of whom make up the 30 per cent of retailers who are not confident they will survive the next 12 months.”

Harford said the reality was the vast majority of retailers pay well above the minimum, at an average of $26.65 in 2022.

“However, any increase in the minimum wage has an impact on all wage rates, not just those at the bottom. Those who are on the minimum wage are typically at entry-level roles who quickly progress through the retail sector – but the additional reality is any increase at the bottom rates evidently increases all rates that are then just passed onto the consumer.”

Support needed ‘now more than ever’

Prime Minister Chris Hipkins said, in a media statement, that in tough times it was critical to support those who struggle the most to make ends meet.

“Those on low incomes make impossible trade-offs between food and medical care, dry homes and a pair of shoes,” Hipkins said.

“These families need our support now more than ever and an inflation-adjusted lift in the minimum wage will mean thousands of New Zealanders do not go backwards.

The Government will review the minimum wage rate again later this year.