QSR Magazine: Can Higher Wages Actually Work?
QSR Magazine: Can Higher Wages Actually Work?

With minimum wages on the rise and new overtime legislation soon going into effect, restaurants are searching for ways to pay more—and still make a profit.

On the news, in the papers, and on the streets of cities like New York and Detroit, there’s been no shortage of attention paid to fast-food workers’ protests and demands for everything from higher pay to better benefits. Rapidly shifting laws are showing that several cities and states are prepared to give them what they want—or at least make employers do so.

Though the national minimum wage still stands at the 2009 level of $7.25 an hour, more than 30 states offer a higher amount, while 14 states began 2016 with higher minimum wages than those of last year. Two states in particular made drastic and well-publicized changes to their minimum-wage laws in April: New York and California plan to bump it to $15 an hour by the end of 2018 and 2023, respectively.

While minimum wage battles continue to rage at the state level, the federal government is also getting involved in the conversation over compensation, extending overtime pay to anyone making less than $47,476 annually (or $913 weekly). The law will go into effect December 1, and the Department of Labor says more than 4 million workers will be affected by the legislation within its first year of implementation. But the wage changes are also leaving an overwhelming number of operators in the limited-service sector feeling just that: overwhelmed by the idea of skyrocketing labor costs and the tightening profit margins they’ll likely bring.

Todd Wulffson, a partner at labor and employment law firm Carothers DiSante & Freudenberger LLP, says many of his clients are facing three options in markets where minimum wages are on the rise: increase menu prices, decrease labor costs, or move out of the areas in which they’re being impacted.

In fact, a 2016 survey by the restaurant workforce experts at TDn2K showed that more than 80 percent of quick serves surveyed plan to raise menu prices to offset higher wages. Nearly half (48 percent) say they’ll cut employee hours or adjust staffing levels, and 38 percent plan to implement labor-saving technology.

Wulffson says minimum wage increases can cause both labor costs for restaurants and menu prices for consumers to rise, especially for smaller operators and those who only operate units in the affected markets. “It’s massively increasing the cost on a few employers that were already struggling with the 5 or 6 percent profit margin,” he says.

He is also seeing his restaurant clients making moves to shift more—if not the majority of—employees to part-time status to avoid offering benefits.

“If you have to pay more in minimum wage, the only way to offset that is to pay less in benefits,” he says. “It’s actually causing more harm to the people it was intended to help.”

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