Seattle Minimum Wage Total Compensation Ability for Small Businesses

UPDATE OCT. 4 – Yesterday, Mayor Bruce Harrell announced that he is walking away from discussions regarding total compensation. As a result, total compensation will sunset effective Jan. 1, 2025 and Seattle’s minimum wage will increase to $20.76 for all employers.

This is an outrageous turn of events and a total failure of leadership on the part of the mayor and the city council.

Your local government affairs team attempted to engage with city leaders for the last several months and offered multiple alternatives as a compromise that would have provided reasonable wage increases while also allowing small businesses to keep their doors open.

UPDATE AUG. 2 – Today Councilmember Hollingsworth announced that she would be tabling legislation to protect total compensation in Seattle, in favor of a stakeholder process.

In response, the Seattle Restaurant Alliance released the following statement.

Far from keeping faith with the 2014 agreement to raise Seattle’s minimum wage, the failure of leadership to address the unsustainable impacts of the ordinance today represents a betrayal of that agreement. The goal of the employer community’s participation in the deal was to avoid running small business owners off a fiscal cliff and to avoid forcing massive cost-cutting decisions onto their businesses, including cutting employee hours. Increasing labor costs by 20 percent overnight – which was not part of the agreement but will happen if no action is taken by the City – will do exactly that…

Read more here.

***

Background

As of 2024, small businesses may use $2.72 per hour in total compensation (tips and/or payment towards medical benefits). This system has existed since Seattle’s minimum wage went into effect on April 1, 2015, and has worked as intended for a decade. Our ask is simple: continue what is working for employers and employees alike and protect small businesses by eliminating the sunset of total compensation.

Without total compensation every small restaurant operator is facing a 20% increase in labor costs on Jan. 1.

History

Seattle’s minimum wage ordinance went into effect on April 1, 2015, and categorized employers into two categories. Schedule 1 (large employers) those with 501 or more employees and schedule 2 (small employers) those with 500 or fewer employees worldwide. (Franchises count all employees in the franchise network.)

Schedule 1 employers – all large employers – pay the full minimum wage. On Jan. 1, 2023, the minimum wage for large employers was $18.69/hour and starting on Jan. 1, 2024, the minimum wage for large employers is now $19.97/hour.

Schedule 2 employers may pay the hourly minimum compensation or the hourly minimum wage shown in the following schedule and make up the balance with employee tips reported to the IRS and/or payments toward an employee’s qualifying medical benefits plan (total compensation).

In 2025, all total compensation ability expires without passing a new law. Small employers will pay the same minimum wage as large employers and will no longer be able to count employee tips and/or payments toward an employee’s medical benefit plan. This will result in an increase of over 20 percent and more than $3 dollars per hour!

If you would like to ensure you receive news and updates from the SRA, please CLICK HERE.

Continuing total compensation for small businesses
Total compensation has been a critical option for small employers from the outset of Seattle’s minimum wage ordinance. Small businesses, especially restaurants, operate on razor thin margins and must already compete with supply chain issues, rising costs of goods and inflation. In industries where tips are common, allowing for the continuation gives those businesses the flexibility to reach Seattle’s minimum wage.

Local small businesses, particularly restaurants and other hospitality businesses, are fundamental to building a thriving community. Restaurants struggled to survive through the pandemic. The average restaurant accumulated $160,000 in debt after any government relief programs, which could take four years to retire. Restaurants continue to struggle with supply chain challenges and historic inflation. Many restaurants have altered menus, raised prices, and reduced hours of operation to meet current economic challenges.

Additionally, total compensation can include medical benefits. Allowing for the cost of medical benefits to be counted to make up the balance towards the minimum wage not only incentives small businesses to provide health benefits to their employees, but it also assists in the overall cost structure.

Continuing the total compensation through employee tips and/or payments toward an employee’s medical benefit plan for small employers makes sense and will not place additional stress on small businesses who otherwise will have to adjust their budgets to account for an almost $3 dollar an hour increase for each employee on top of yearly inflation.

If total compensation is not extended by new legislation, starting in 2025 small employers will see their labor costs jump significantly, placing additional strain on an already burdened small business community.

If there is openness to continue total compensation, we may seek to include education or retirement benefits as additional options.

Next steps
Your government affairs team is actively meeting with councilmembers and staff to discuss this issue and introduce a legislative fix to strike the sunset clause. Additionally, we are working to build a wide coalition of supporters across Seattle. In the coming weeks please be on the lookout for updates and opportunities to make your voice heard.

Please reach out to Austin Miller austinm@wahospitality.org with questions.