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US restaurants face higher costs under Biden plan to boost federal minimum wage

U.S. President-elect Joe Biden's support for a higher federal minimum wage could raise the cost of doing business for restaurants as the pandemic continues to eat into industry profits and put pressure on its workforce, experts say.

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President-elect Joe Biden supports more than doubling the federal minimum wage to $15 per hour.
Source: Biden campaign

Biden supports raising the federal minimum wage — which applies in jurisdictions that have not set their own pay requirements — from the $7.25 per hour set in 2009 to $15 and eliminating the minimum wage for tipped workers, which allows employers to count tips received by certain employees against the federal minimum, according to his campaign website.

Advocates arguing for higher wages view a boost to wages as long overdue, especially as the COVID-19 pandemic has presented new safety risks to food service workers and other retailers. Biden also supports increased pay for frontline workers and wants to double the number of Occupational Safety and Health Administration investigators to enforce workplace standards, according to his website. The Biden-Harris transition team did not respond to a request for comment.

The restaurant industry closely watches the issue of wages, experts say. Any changes to the federal minimum wage would impact restaurants across the board, and they would find ways to offset the cost of an increased federal minimum wage, Peter Saleh, a managing director and restaurant analyst at BTIG, said. Restaurants typically offset costs either by raising menu prices or reducing labor costs with things like technology, Saleh said.

"Restaurants know they need to keep a certain type of margin for them to be profitable," Saleh said.

If the federal minimum wage is raised, pay for restaurant and retail workers would catch up to wages already offered in many states. A total of 29 states and Washington, D.C., impose minimum wages higher than the federal minimum, while many localities within states have raised their wage floors even higher, according to the Economic Policy Institute, which is in favor of gradually raising the minimum wage and gradually getting rid of a tipped wage. Florida voters on Nov. 3 approved a measure that will raise the state's minimum wage from $8.56 an hour to $15 an hour over the next six years.

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"I think once we've dealt with the pandemic, finding ways to raise pay for ordinary workers is going to be a top priority for this administration and raising the minimum wage would help, we estimate, upwards of 30 million workers," David Cooper, a senior economic analyst with the Economic Policy Institute, said in an interview.

How much progress the Biden Administration will be able to make on these issues remains uncertain. If Democrats gain a slim majority in the Senate by winning both of Georgia's Senate runoff elections Jan. 5, there would be a better chance for Biden to achieve his goals. If Republicans retain control of the Senate, Biden will have less leeway to pursue his agenda. However, the administration will be able to shape the enforcement priorities of the Occupational Safety and Health Administration and the U.S. Department of Labor.

"They could try to make a concerted effort to make sure that workers in a very vulnerable position are more protected during this pandemic," Annelies Goger, a fellow at the Brookings Institution, said in an interview.

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Checks and balances

Some companies have moved ahead with pay raises of their own and expanded on benefits in response to the pandemic.

Starbucks Corp. will give all its U.S. baristas, shift supervisors and café attendants in company-operated stores hired on or before Sept. 14 at least 10% raises that will go into effect in the U.S. by Dec. 14.

Chipotle Mexican Grill Inc., meanwhile, has issued $37 million in bonuses and assistance pay to its restaurant employees in 2020, and workers directly affected by COVID-19 can get pay equal to their upcoming two-week schedule or average hours worked. Chipotle pays its hourly workers above the federal minimum and the national average is $12 an hour, the company said.

The average starting wage for McDonald's Corp. employees at corporate-owned locations — which account for less than 10% of its roughly 14,000 U.S. restaurants — is above $10 per hour, a spokesperson for the restaurant company said in an email.

Major companies including McDonald's, Amazon.com Inc., Walmart Inc. and Restaurant Brands International Inc.'s Burger King have drawn criticism for their pay practices. Thousands of employees of those companies are recipients of government aid for low-income families, according to a Nov. 18 report by the Government Accountability Office.

"At a time when huge corporations like Walmart and McDonald's are making billions in profits and giving their CEOs tens of millions of dollars a year, they're relying on corporate welfare from the federal government by paying their workers starvation wages," Sen. Bernie Sanders, I-Vt., said in a Nov. 18 statement. "That is morally obscene.

McDonald's said the GAO report's findings are being "taken out of context and is framed in a misleading way." The company, including its franchisees, is among the largest employers in the U.S., McDonald's said.

"McDonald's believes elected leaders have a responsibility to set, debate and change mandated minimum wages and does not lobby against or participate in any activities opposing raising the minimum wage," the spokesperson said.

Restaurant Brands International and Amazon did not respond to requests for comment. Amazon raised its minimum wage to $15 an hour in 2018, while Walmart announced in September that it plans to boost minimum pay for deli and bakery workers and plans to pay $2.8 billion in quarterly and special cash bonuses to employees.

Anne Hatfield, a Walmart spokesperson, said that if it were not for the employment access Walmart and other companies provide, many more people would be dependent on government assistance.

"A small percentage of our workforce comes to us on public assistance, and we remove employment barriers and create opportunities for individuals that too many overlook. Walmart has invested more than $5 billion in increased pay, expanded health benefits and a debt-free college program over the past five years, and our starting rate is more than 50% higher than the federal minimum wage," Hatfield said. "We support efforts to raise the minimum wage while we continue to make investments in our associates."

On the tipped side, Bloomin' Brands Inc., which owns the Outback Steakhouse and Carrabba's Italian Grill chains, would see some impact from a $15 minimum wage but is confident in the company's ability to adapt, Cathie Koch, a Bloomin' spokesperson, said in an email.

"As for the tipped wage, many of our servers already make more than $15 with tips," Koch said.

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While much of the industry is open to a conversation on wages, the current priority should be supporting restaurants during the pandemic, according to Sean Kennedy, executive vice president of public affairs for the National Restaurant Association, which has opposed legislation to increase the federal minimum wage. If enacted, a higher federal minimum wage would come at a time when restaurant sales for the industry have yet to recover to pre-pandemic levels and a changing patchwork of dining restrictions pressures margins.

Restaurants would be forced to cut shifts for workers and changes to the tipping system would hurt workers who make more than the minimum wage, Kennedy said in an interview. In 2019, the median hourly pay of entry-level servers was $19 an hour, while the more experienced servers earn a median of $25 an hour, according to a National Restaurant Association survey of 529 full-service restaurant operators with tipped employees. Other workers can earn as much as $38 an hour, according to the survey.

"Restaurants are spending more in COVID-relief protocols ensuring that the restaurants are safe at the same time that the government is reducing the number of people that can dine in restaurants," Kennedy said in an interview. "We're in a very vulnerable point if we're going to start discussing major increases to labor costs for restaurants."

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

Safety concerns

Restaurant workers for years have been calling for better pay and the pandemic has created new challenges for the estimated 10.2 million people employed in the food service industry.

U.S. bars and restaurants employed 2.1 million fewer people in November compared to February, and the Centers for Disease Control and Prevention said in a Sept. 11 report that adults with COVID-19 were twice as likely to report dining out than adults who tested negative for the disease.

Meanwhile, about 44% of food service workers reported at least one co-worker had contracted the virus, according to 1,675 responses to a survey of workers by One Fair Wage, which advocates for ending tipped wages. About 66% of respondents to the survey reported their tips had dropped by more than half, while 41% reported an increase in unwanted sexualized comments from customers.

"If we want to stop COVID hotspots, we must ensure these workers are paid a full minimum wage and can enforce safety protocols and resist sexual abuse undermining their ability to feed themselves and their families," Saru Jayaraman, executive director of One Fair Wage, said in a Dec. 1 statement.

Employers need better clarity on what is required of them regarding employment rules, how they can access government assistance, and what their health and safety obligations are, Goger, the Brookings Institution fellow, said.

OSHA and the Department of Labor could be more clear about communicating COVID-19 safety rules and fill in positions the Trump administration did not rehire for, Goger said. Department of Labor and OSHA officials could be more proactive and strategic about their oversight and inspections, as well, Cooper of the Economic Policy Institute said.

The Trump administration has barely investigated or fined employers over the last year for not complying with existing workplace safety regulations, but Biden could get tougher on enforcement, though approval of a budget would still have to come from Congress, Goger said.

"They still have some leeway to decide how to spend the money they have," Goger said. "It's not totally free rein, but within those buckets they can make a lot of decisions."