Hiring staffers, training them to full productivity and then retaining them is a constant challenge. But since the start of the new year, restaurateurs' worries have increasingly focused on the cost of labor as the minimum wage increased to $14.42 for Colorado, $15.02 for Edgewater and $18.29 for Denver.
Colorado enacted its first minimum wage law in 1935, setting it at $0.35 an hour (that's $7.89 when adjusted for inflation). For almost a century, the minimum wage increase was ad hoc and inconsistent — until 2010, when voters approved Initiative 100, which links Colorado minimum wage adjustments to the Consumer Price Index (CPI).
Timeline of state minimum wage for Colorado provided by Federal Reserve Economic Data
U.S. Department of Labor
Denver's regulators calculated this rate using the state baseline “ratio of $1.00 per hour for every $4,684.60 in annual cost of living,” explains the 2023 Local Minimum Wage Report. Edgewater recently also took advantage of HB19 and passed an ordinance last May to raise its minimum wage based on CPI, which went into effect on January 1 of this year.
As the minimum wage has steadily increased over the last decade, restaurateurs — especially those with businesses in Denver — have felt the squeeze. “I'm 100 percent on board with the raising of the minimum wage. ... I want my team to make a comfortable living. Without my staff, we could not survive,” says DiFranco, offering a sentiment echoed by all the restaurateurs Westword spoke with for this story.
However, within the industry, there’s a lingering, unspoken “but” — which is that the annual, unceasing, regulated increase in labor costs is chewing away at already razor-thin profit margins.
Labor is an inflexible cost for most full-service restaurants. The Greenwich in RiNo seats 140 people and employs a staff of 35, including six salaried managers. On any Friday night, there are seven servers, two bartenders, one person on support, four cooks, two dishwashers and a polisher on the clock, in addition to the morning prep team and managers. “It’s an army that makes service possible every night,” says owner Delores Tronco.
One of the stipulations of HB19-1210 was that the Colorado Department of Labor and Employment (CDLE) must prepare an annual report on the effects of the minimum wage increase. Even after adjusting for the outsized impact of COVID-19, the most recent report notes that since the local minimum wage took effect, Denver’s unemployment rate has fallen in line with Colorado’s, and the city has maintained strong wage growth — the average weekly earnings in 2022 was $1,779 versus $1,141 in the state overall.
Where zero equals Colorado’s unemployment rate.
2023 Local Minimum Wage Report
The report also specifically tracks the monthly sales tax revenue per capita from food services and drinking places, showing that from 2020 to 2022, it has increased 85 percent. Of course, part of that significant increase is pandemic recovery, but the numbers show that Denver’s food industry has bounced back to pre-pandemic levels faster than the rest of Colorado.
“We need to increase our revenue a lot to be able to maintain the staff we have,” says Natascha Hess, chef and owner of Ginger Pig. “We're working hard on that. It's good for the employees, but tough on the business to incur these increases on January 1 each year.”
While a good rule of thumb is to keep labor costs at 20 percent of revenue for full-service restaurants, the owners we spoke with say that labor margins currently range from 30 to 35 percent.
As of 2024, Denver has the eighth-highest minimum wage among U.S. cities, topping places like New York City and San Francisco. However, restaurant owners in Colorado have one advantage those cities do not: a $3.02 tip credit. This means the minimum wage for tipped workers in Denver is $15.27, and $11.40 in Colorado.
Many restaurants take advantage of this — it equals a savings of $6,500 per worker per year — but Tronco thinks it should be larger. “So we can use New York City as an example," she explains. "Their tip credit is [$5.35] per hour, and their tipped minimum wage is $10.65 per hour. Denver's tipped minimum wage is 43 percent higher than New York City's. I think it’s time to ask ourselves if Denver's minimum wage and tip credit laws make sense if our goal is to preserve and help small businesses succeed.”
Last month, state Representative Javier Mabrey, a Democrat, proposed a bill that would give local municipalities the option of eliminating the tip credit, but it was defeated before it was officially introduced in the Colorado Legislature after it was opposed by many in the industry, including the Colorado Restaurant Association.
Part of Tronco’s frustration is that if she utilizes the tip credit, she contributes to the pay disparity between the front-of-house and back-of-house. Many restaurants these days use a tip pool, meaning all the tips are distributed by pre-determined formulas using weighted points and total hours; typically, part of a worker’s onboarding will include the structure of the tip pool points system and expected points. Colorado’s regulations categorize tips as a “gift,” however, so if a restaurant wants to use both the tip credit and a tip pool, it can only make the tip pool available to the front-of-house staff.
To compensate, the Greenwich starts its back-of-house staff at $21 per hour, which is higher than its front-of-house staff pay. Even so, servers regularly make double or triple what the back-of-house staff takes home. This dynamic can contribute to inequalities among staffers.
Abrusci’s Fire & Vine got rid of tips in 2015.
Teal Nipp
Paying employees a higher flat rate has worked —Abrusci's owner Marvin Williams cites it as a major factor in its high retention rates and collaborative culture. But as the minimum wage has continued to increase over the last nine years, "what we’re seeing is that the difference between the minimum wage and what we are paying is reducing," he explains. "So therefore, to keep the same philosophy, we’re having to raise our wage." He has also had to reduce the number of items on offer and raise prices to keep the business profitable, he adds.
When labor costs go up, increasing prices is often offered as a solution, but “the issue is consumers are very price sensitive to restaurant price increases,” explains DiFranco. "Any little price increase often comes with a lot of scrutiny, and it's the restaurant that suffers. Any time a guest feels that they don't get enough food for what they paid, they will go right to Google or Yelp with a review. It's a cutthroat business.”
“I mean, how much could we possibly charge for a half-chicken?” Tronco jokes. "If the guest is open to having a conversation, I ask what wage they assume servers and bartenders are paid hourly. Most times they say between two and three dollars.”
There is another solution for eateries struggling with labor costs: Don’t start a full-service restaurant. David Schloss learned that lesson after his previous experience with a sit-down spot in New Orleans. Having cooked professionally for a decade, he moved to Denver six years ago and worked for Safta before opening the fast-casual Sonny’s Mediterranean last summer.
“I had the luxury of this being a new concept, and knowing what the labor landscape was going to look like with rising minimum wage and everything,” he says. His restaurant operates with a sous chef, two cooks and three part-time servers. He and his fiance, Lena Young, pick up any slack in the schedule; he currently pulls seventy-hour workweeks and she works every hour she’s not at her day job.
“We pride ourselves in paying our employees very well,” he says. “But you definitely need to demand a lot out of your workers. ... My employees are more than one-and-a-half times more productive as somebody that I could hire off the street and train.” He estimates with overtime and the tip pool, his workers make $32 per hour, but with so few employees, he can still hit 25 percent labor margins and keep Sonny’s profitable.
Even established restaurateurs are taking the hint; during COVID, Williams and his partners experimented with a food truck, Pabilto’s Burritos. Its bottom line, and the overall hospitality landscape, has convinced him that “opening a full-scale restaurant with a full menu like you would ten years ago is diminishing. You have a lot more people specializing, whether it’s a coffee shop that doesn’t offer baked goods or a wine bar that doesn’t offer food," he says. "Yeah, we’d be hard-pressed to open up another Abrusci’s but now Pabilto’s, we’ll open up twenty of those.”
To open a restaurant is always to fight against the odds; to open a restaurant in Denver right now is playing on expert mode. But these restaurateurs are in it for the long haul — they just hope their workers are, too.
“I think there is a stigma with working in a restaurant. People often view it as a temporary thing and not a career," says Hess. "We have tried to make it possible for people to be here for a long time — even for their career, if that is what they want."
She concludes, "We are nothing without our staff. It takes all of us every night to make this work. ... Working in a restaurant is hard, harder than people would think. I think it would benefit everyone to do it for a while and it would make the customers really understand and appreciate what we do.”
