When Philadelphia’s restaurants and bars shuttered Monday afternoon in response to a city-wide ban on non-essential businesses, thousands of service workers learned they’d be laid off. Their managers recommended they file for unemployment.
But for many of the city’s 80,000 food workers, the restaurant industry’s byzantine pay structures and workaround hiring practices mean filers won’t receive an unemployment benefit timely or substantial enough to supplement their salary.
Gus Rocha’s pay averaged a grand a week before he was laid off Sunday, just hours before the omakase sushi restaurant he’d served at for over a year closed.
“It’s a little scary, especially, because I had all these plans. I was saving up and getting transcripts to go back to school in the summer and fall, and now that’s definitely out of the picture until at least next year,” said Rocha, 31. “Now, I don’t have a plan.”
Nationally, restaurant workers constitute 8% of the workforce, a ratio Pennsylvania mirrors. As of Wednesday, 25 states had ordered the shut down of nonessential businesses. If closures continue, a total of 12.3 million U.S. service employees are at risk to lose their jobs in what will be the leading edge of job losses that will ripple throughout the economy.
Responding to COVID-19 layoffs, The Pennsylvania Restaurant & Lodging Association (PR&LA), which advocates for service industry employees, pushed the state to waive unemployment’s one-week waiting period. But workers still have to contend with a three- to four-week delay while their benefits are processed, one many aren’t prepared to weather.
“Most people and particularly hospitality workers don’t have the resources to go three or four weeks, if one week, without a paycheck,” said John Longstreet, PR&LA’s CEO and President.
The larger concern is once workers receive their benefit, it won’t be enough.
Pennsylvania is one of 40 states where restaurants pay workers a tipped hourly wage, a figure less than the federal minimum, somewhere between $2.13 – $6.38 an hour. In Pennsylvania, it’s $2.83.
Restaurateurs anticipate that an employee’s cash or credit card tips will make up the difference between the tipped minimum and the state’s. If business is slow, employers are legally supposed to pay the difference.
Many restaurant workers, like Rocha, are tipped sometimes in cash, sometimes by credit card. The latter goes into a check, where it’s taxed. The cash tips are pocketed and it’s up to the server to report how much cash they receive each shift.
For Rocha, Sunday through Tuesday were industry nights, high grossing shifts when service industry regulars would come out, usually with the cash they’d made that week, spend big and tip well.
“You could walk out of there, with $100 to $200 just in cash,” said Rocha. “And if I get any cash, I report maybe 15% of it.”
The industry standard is to underreport cash tips to cut down on taxes.
But when U.S. workers claim unemployment, they typically receive 50% of taxable income for half of the year, with a weekly cap, all of which varies by state. With thousands of service workers underreporting their income, there will also be thousands receiving insufficient aid.
“You can at least be assured that they’re going to receive a benefit reflecting the full minimum wage in their unemployment checks,” said Longstreet.
For a server like Rocha, who’s total pay averaged $25 an hour, a benefit based on a $7.25 minimum wage is unlikely to cut it.
Unemployment benefits aren’t on the table for many service workers. Rocha looked into unemployment the day after being laid off, but as an immigrant whose social security number had expired in 2018 along with his Deferred Action for Childhood Arrivals (DACA) status, he was ineligible.
The same is true for the undocumented immigrants who make up 11% of the restaurant industry, according to a Pew Research Center study.
Predictions from economists this week see hospitality industry cuts as the first wave in a surge of future layoffs. Averaged forecasts by Goldman Sachs, Deutsche Bank and JP Morgan suggest that 5.2 million jobs will be lost nationally by the summer.
Still, the hospitality industry will take the brunt, shouldering 25% of private-sector job losses, an Economic Policy Institute study estimates.
“The loss of that income, even temporarily, is going to be a big number,” said Augustine Faucher, Chief Economist at PNC Financial Service Inc.
The financial toll layoffs take on restaurant workers will soon seep into consumer spending on clothes, food and entertainment said Faucher.
When Pennsylvania closed restaurants on March 16, it was with the intent to reopen 11 days later, on March 27. But with pandemic projections pointing to May as the peak month for cases, restaurant owners, including Rocha’s, have told employees that, for now, closures are indefinite.
“The longer this lasts, the more people have to tighten their belts,” said Faucher. “So there’s the potential for this situation to snowball.”