Fast food companies prepare to lay off staff to avoid increased payroll expenses.
Minimum Wage Increase Driving Job Cuts
Effective April 1st, some fast food companies in California will be required to offer their employees a minimum wage of $20 per hour.
This has prompted some companies to initiate rounds of layoffs to avoid the higher costs of payroll. Opponents of the wage hike predicted this outcome as a potential effect of the bill.
Layoffs Announced at Pizza Chains
Thanks to California’s rules requiring employers to report layoffs ahead of time, it is now public knowledge that Pizza Hut will be laying off over 1,200 delivery drivers.
Another pizza chain based in California, Round Table Pizza, plans to lay off nearly 100 drivers.
Delivery Drivers Commonly Affected
Pizza companies are resorting to layoffs, especially of delivery drivers, because they can instead sign up to use third-party delivery services for a fraction of the cost of keeping drivers on the payroll.
Other Impacts
Layoffs are just one side effect of the minimum wage hike. Many other California restaurants have announced their plans to raise menu prices to help cover newly increased payroll costs.
Which Companies Are Affected By the New Law?
The minimum wage increase applies to fast food restaurants in chains with over 60 locations throughout the country. It does not apply to restaurants that offer table service.
Are There Exceptions?
There are some exceptions to the law. In an effort to provide some restaurants with a waiver that allows them to bypass the new minimum wage requirements, Governor Gavin Newsom created a special exemption that will apply under certain circumstances.
How Bread Is Saving Some Businesses
Establishments that “produce and sell bread as a stand-alone menu item,” according to the state’s website, do not have to adhere to the minimum wage increase.
Other Exemptions
Restaurants that are housed inside a grocery store are also unaffected by the law.
Controversy Surrounding Exceptions
The exemptions have ruffled feathers, particularly in regards to whether Panera Bread would be exempt from the law because it highlights Governor Newsom’s relationship with Flynn Restaurant Group CEO Greg Flynn. The two have known each other for decades.
Newsom’s Connections to Panera Owner
The revelation that Panera Bread might be exempt from the wage hike triggered boycotts against the restaurant, with many taking issue with the fact that Flynn’s friendship with (and financial support of) Newsom was suggested to play a part in the exemption.
Flynn to Follow Law Regardless of Exemptions
However, both Newsom and Flynn have refuted these claims, and the latter has promised that the Panera Bread locations he owns will pay employees a minimum of $20 per the new law.
The Impact on Salaried Employees
According to the state, the wage increase does not only apply to hourly employees. As defined by California, salary-based employees “must receive a salary of at least two times the state minimum wage for someone working 40 hours a week,” in addition to meeting other requirements.
Minimum Salary Requirements
This means that for managers and any other salaried employees at fast food establishments impacted by the law, the minimum salary they can be paid will now be $83,200 per year.
Restaurants Making Headlines
Pizza Hut and Round Table Pizza are not the only restaurants that are engaging in layoffs ahead of the increase.
Double-Dipping in Savings
Two Vitality Bowls locations in San Jose have cut their employee teams in half and will also be raising menu prices by 10% as a result of the increased wage requirements.
Other Strategies for Saving Money
El Pollo Loco has not announced layoffs but says it is going to start automating some of its processes to reduce labor hours.
Menu Price Hikes
Overwhelmingly, restaurant owners and industry experts have pointed to menu price hikes as the solution to the new financial burden.
Restaurants Planning to Increase Prices
McDonald’s, Chipotle, and Jack in the Box executives have already engaged in or planned menu price increases in an effort to pass rising costs off to the customer.
Some financial experts are concerned that these changes will reduce patronage of fast-food restaurants.
Employees Wait to Hear Their Fate
As April 1st draws nearer, fast food employees across the state of California await news on whether they will be anticipating a wage increase or facing a job loss.
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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.