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Seattle Minimum Wage Total Compensation Ability for Small Businesses

The Seattle Restaurant Alliance is building a coalition of supporters to advocate passage of new legislation before the end of the year to continue the total compensation option in perpetuity for small employers in Seattle.

Background
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).

Year Hourly Minimum Wage
2023 $16.50
2024 $17.25

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.

Seattle Minimum Wage Q&A

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.