All options on table for business owners facing Seattle’s wage increase

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SEATTLE — All eyes are on Seattle as it moves toward a $15 minimum wage, the highest of any major city nationwide.

On June 2, the City Council unanimously passed an ordinance requiring employers to pay at least $15 an hour in the next three to seven years, representing a 61 percent increase over the state’s current minimum of $9.32.

Mayor Ed Murray, who subsequently signed it into law, said it was a bold — but not dangerous — experiment. Labor activists hailed it as a landmark victory for low-wage workers.

Whether Seattle’s $15-an-hour mandate proves successful largely depends on how employers react.

While it’s early, many already are factoring in the higher wage costs as they plan for the future. Will they lay off workers or raise prices? Cut benefits and workers’ hours? Or maybe they’re confident that workers with more money to spend on local goods and services will boost their bottom lines?

The Seattle Times reached out to four local business owners and found all of that in the mix, though layoffs generally are seen as a last resort, and price increases carry some risk in a competitive landscape. Here’s how these four are preparing for a $15 minimum wage.

HOLIDAY INN EXPRESS, NORTH SEATTLE: Ron Oh stood before the City Council on a recent Monday afternoon to share the story of his family’s improbable journey from North Korea more than 60 years ago.

He described how his father, John, fled to South Korea as a young boy with three brothers just before the Korean War, then came to the Pacific Northwest to attend the University of Oregon on a full-ride scholarship.

“The way to become rich is to put all your eggs in one basket and then watch that basket,” Mr. Oh said at City Hall, quoting Andrew Carnegie. “This is our basket, and the eggs are the lives of my entire extended family. We are watching that basket carefully.”

The family’s 102-room Holiday Inn Express employs 28 people. Yet because it’s considered a large business and does not provide health insurance, it must begin paying a $15 minimum in three years. Businesses with fewer than 500 employees nationwide, by contrast, have up to seven years to phase in the increase.

Mr. Oh, 41, has joined a lawsuit filed in U.S. District Court in Seattle by the International Franchise Association and other franchisees to try to strike down the ordinance, calling it discriminatory and unconstitutional.

In 2005, his Holiday Inn Express recorded its first annual profit of $38,000 and has stayed in the black since then, despite a 20 percent drop in business during the Great Recession.

Mr. Oh, the general manager, says 2013 was a record year, with a profit of $600,000 and revenue of $2.9 million.

He says his 20 non-managerial employees make, on average, $10.25 an hour, plus tips. Paying everyone at least $11, as he must do next April, will add an estimated $80,000 to his annual labor costs. In 2017, when he’s to pay $15, his costs will increase by $250,000 over current levels, he said.

The hotel spent about $580,000 last year on labor, followed by $300,000 in franchise fees and $160,000 in reservation fees. It also has about $4.2 million in outstanding debt, Mr. Oh said.

He plans to raise room rates and reduce workers’ hours to pay for the wage increase.

“We’ll do our best to become more efficient,” he said. “Rooms have to be cleaned faster, and if people underperform, instead of working with them more, we’re going to have to let them go.”

He says he promotes managers from within and works with local colleges to train new employees.

“Would I still mentor and hire interns? I would,” he said. “But could I explain it to my family, the owners, why I’m spending time to train people when I could hire someone who’s fully trained and ready to go? It’s a tough question.”

EL GAUCHO HOSPITALITY: Chad Mackay picks up a silver-plated fork at the white-tablecloth restaurant he runs with his dad, Paul, in Seattle’s Belltown neighborhood and admires its clean shine.

“We have an employee whose job is to polish, burnish and take care of the silver,” he said. “Everybody else has gone to stainless steel. But this is still valuable to us because of our heritage.”

Their elegant El Gaucho restaurant won’t do away with its real silverware, even if it has to pay more for the upkeep under Seattle’s new $15 wage law, he said. But the mandate “just makes it harder to do business the way we want.”

Mr. Mackay, 44, is president and chief operating officer of El Gaucho Hospitality, a 375-employee company with four namesake steakhouses in the Northwest, a seafood restaurant, Aqua, on Seattle’s waterfront, a food-catering service and a small Belltown inn. Of those 375 employees, 165 work in Seattle, and 100 make the statewide minimum of $9.32, not counting tips.

Mr. Mackay estimates that paying everyone at least $15 will increase the company’s annual labor costs by $700,000, potentially cutting its profits by half.

He estimates the company’s Seattle operations will spend an additional $100,000 on wage costs next year. To cover the increase, he’s considering replacing the tip line on customers’ credit-card bills with a service charge. Unlike tips, which go directly to workers, service charges may be used at the owner’s discretion.

Mr. Mackay also is considering scaling back on health care benefits by limiting eligibility to employees who work at least 30 hours a week, instead of 25 now.

Though raising menu prices is another option, he worries about losing price-sensitive customers.

“Yes, we have some very wealthy customers,” he said. “But we have a lot of customers who are maybe here to celebrate their anniversary. It’s their big night out, and they come only once or twice a year.”

He’ll ask his top customers for their opinion on a service charge and other possible changes in the coming months, and get input from employees on trade-offs they might be willing to make.

“Now that we have a law, what are we going to do?” he said. “My guess is we’ll have something implemented by the beginning of the year.”

GLANT PACIFIC COMPANIES: At his family’s scrap yard just south of downtown Seattle, Ryan Glant proudly points to about 350,000 pounds of aluminum shavings piled high beneath a bright June sun.

The shavings soon will be crushed to make large bales of aluminum and shipped worldwide for the production of aerospace parts and other goods.

“It’s easy to forget these types of businesses are around Seattle,” he said.

His great-grandfather Jules Glant, a Latvian immigrant, founded Pacific Iron & Metal in 1917, buying and reselling scrap metal for a tidy profit.

During World War II, the company also accumulated discarded fabric items and sold them to thrifty homemakers who turned them into quilts, blankets and clothing. Since then, the rag business has evolved into a regional chain of five Pacific Fabrics & Crafts stores, including two in Seattle.

A third family business, Seattle’s Doorhouse, sells building materials, such as doors and windows, at a store near the scrap yard on Fourth Avenue South.

In all, Glant Pacific Companies employ about 160 people, half of whom work in Seattle. The mainstay recycling business boasts an average employee tenure of more than 10 years and provides a range of benefits, including medical insurance, profit-sharing and flexible-work schedules, Mr. Glant said. “All of our full-time hourly employees make more than minimum wage, and more than half make more than $15,” not counting overtime pay, he said. “We’ve always taken care of our employees well before the government mandated it.”

He’s not sure what they’ll do under Seattle’s $15 wage plan, but here are some questions they’re starting to think about: Will store employees in the nearby cities of Bellevue, Bremerton and Everett also expect a raise? What about employees who already make $15? Will they get a bump to maintain pay scales?

“We have no idea how our employees are going to react,” Mr. Glant said.


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