Business
11:43 am
Fri December 13, 2013

Why In-N-Out Burger Pays More Than Other Fast Food Joints

Opening day at Austin's first In-N-Out Burger saw plenty of lines.
Opening day at Austin's first In-N-Out Burger saw plenty of lines.
Credit Jorge Sanhueza-Lyon, KUT News

Austinites got a taste of California yesterday with the opening of the city’s first In-N-Out Burger at 45th and Airport. The drive thru is known for made-to-order burgers and an ordering system that allows you to micromanage your meal. (Want your bun extra toasted? Just ask.) 

In-N-Out Burger has no freezers. No microwaves. No heat lamps. And In-N-Out has been quietly going against another trend in the low-wage, low-benefit fast food industry: they're paying their employees much more than the industry standard. 

Take Ryder Hogle, who just went full time with In- N-Out Burger. He started off part-time in a store in the Dallas area last year. And he’s so good, In-N-Out asked him to come to Austin to help open this store. Hogle is enrolling in Austin Community College this fall, then he hopes to transfer to Texas State to study criminal justice. But he’s also considering staying with the company to continue working his way up. Because while most fast food jobs start at minimum wage, that’s not the case here.

In-N-Out employees like Joseph start at $10.50 an hour, with benefits.
In-N-Out employees like Joseph start at $10.50 an hour, with benefits.
Credit Jorge Sanhueza-Lyon, KUT News

“Getting paid 10.50 an hour just to start out? It’s pretty crazy," Hogle says. "You don’t think about many other jobs that would start out at that wage.” 

The Austin store will employ 50, all with a starting wage of $10.50 an hour. (The current minimum wage is $7.25 an hour, and hasn't been raised since 2009.) 

In-N-Out also offers paid vacation and sick time, even for part time workers, and health care for full-time workers. There’s a 401K plan. And when you’re on your shift, you get a free meal. 

In-N-Out isn’t the only fast food place doing this. Places like P Terry’s and Chipotle also offer starting pay higher than minimum wage. So how do they make money like this? After all – amid the debate over raising the minimum wage, fast food companies have argued they’ll be forced to raise prices or employ fewer people.

 Carl Van Fleet, vice president for planning and development for In-N-Out Burger, says the company has the advantage of being private and family-owned. In-N-Out doesn’t franchise. And by paying more and offering more benefits, it keeps more of its employees.   

Carl Van Fleet, VP of Development for In-N-Out Burger, says the company has always been proud of the fact that they pay better.
Carl Van Fleet, VP of Development for In-N-Out Burger, says the company has always been proud of the fact that they pay better.
Credit Jorge Sanhueza-Lyon, KUT News

“All of our managers have worked their way up through the ranks of our associates," he says. "Every single one of them has done that. Our average store manager has worked for us for over fourteen years.”

Daniel Hamermesh, economics professor at the University of Texas at Austin, says In-N-Out ends up saving money by spending more to retain better quality workers, who can make a longer term commitment.

“It leads more workers to be attached to the company," he says. "It avoids training. It avoids the cost of turnover.”

So if it works for In-N-Out, will other fast food companies follow suit?

“The answer is surely yes," Hamemersh says. "As the country gets richer. But that’s a steady thing. I don’t think you’re going to see any one-time jump to an In-N-Out Burger high-wage model at places like McDonald’s or any of the other fast food joints.”

Hamermesh suggests a different solution to the issue of fast food wages: take the minimum wage, raise it a little, and index it to inflation. Then you wouldn’t have the recurring debate over how much the minimum wage should be.

For instance, if you took the minimum wage from 1968, and adjusted for inflation and growth in productivity, today's minimum wage should be around $25 an hour. But because it isn't indexed to inflation, the issue never gets resolved. The President and some members of Congress have proposed setting the minimum wage at $10.10 an hour and indexing it to inflation from here on out.

In the meantime, In-N-Out’s model of paying more for better workers seems to be working for the company. But the company takes its time and doesn’t go after the rapid growth of other fast food businesses.

"We have determined that it’s in the best interests of our company to grow a little more slowly, a little more cautiously," says In-N-Out's Van Fleet. "This slow growth rate has worked for us for 65 years, and we’re gonna stick to it.” 

That applies to Austin, too. Another store is under construction in Cedar Park, and one in New Braunfels. A few more locations in Austin will likely come, too. "Those are all really in the early stages, so it's probably too soon at this point to talk about those," says Van Fleet. "Ultimately, we'd like to have more than three here."