Minimum Wage Changes to New York’s Fast Food Industry

As we previously discussed in May and July of this year, wage and hour requirements for the fast food industry in New York State are changing starting in the new year. These changes, which go into effect on December 31, 2015, result from recommendations made by the Fast Food Wage Board, which Governor Andrew Cuomo instructed Acting State Labor Commissioner Mario J. Musolino to empanel in May of 2015. The Wage Board announced its recommendations in July, and Acting Commissioner Musolino accepted those recommendations in September of 2015.

The new requirements apply to any employee working for a covered “Fast Food Establishment” if the employee’s job duties included at least one of the following: customer service, cooking, food or drink preparation, delivery, security, stocking supplies or equipment, cleaning, or routine maintenance.

A covered “Fast Food Establishment” is any business that meets the following criteria:

• Primarily serves food or drinks, including coffee shops, juice bars, donut shops, and ice cream parlors; and
• Offers limited service, where customers order and pay before eating, including restaurants with tables but without full table service, and places that only provide take-out service; and
• Is part of a chain of 30 or more locations, including individually-owned establishments associated with a brand that has 30 or more locations nationally.

The higher minimum wage rates for covered employees are as follows:

New York City:

• $10.50 per hour beginning December 31, 2015;
• $12.00 per hour beginning December 31, 2016;
• $13.50 per hour beginning December 31, 2017; and
• $15.00 per hour beginning December 31, 2018.

New York State (excluding New York City):

• $9.75 per hour beginning December 31, 2015;
• $10.75 per hour beginning December 31, 2016;
• $11.75 per hour beginning December 31, 2017;
• $12.75 per hour beginning December 31, 2018;
• $13.75 per hour beginning December 31, 2019;
• $14.50 per hour beginning December 31, 2020; and
• $15.00 per hour beginning July 1, 2021.

The New York State Department of Labor has now published a revised Hospitality Industry Wage Order codifying the new requirements in addition to a page addressing a number of frequently asked questions (FAQs) to assist employers with implementing the new requirements.

There are several points to note from the new wage order and the FAQs, which employers should watch as they implement changes to their policies in an effort to remain in compliance with the law:

• Tip credits are not available for fast food employees. However, we note that a fast food establishment is one where patrons order and pay before eating and which offers limited service. So, if employees were previously receiving a tip credit wage because they were waiting on and regularly receiving tips from customers, it is very possible, if not likely, that the employees will not be considered fast food employees under the new requirements.
• Although fast food workers do not regularly earn tips and an employer cannot take a tip credit for them, fast food employees must be allowed to keep any tips that they do earn.
• With the increase in the minimum wage for fast food employees, employers must be sure to pay the higher rate for spread-of-hours pay and call-in pay, should those apply.
• A “fast food establishment” need only have 30 locations nationally–not 30 locations in New York State–to qualify for coverage.
• The 30 establishments need not be commonly owned and operated to trigger coverage as a “fast food establishment.” The 30 establishments can be operated as a franchise if the franchisor and franchisee own or operate 30 establishments.
• A “chain” is defined as a set of establishments that share a common brand or that are characterized by standardized options for decor, marketing, packaging, products, and services.

(via JDSupra)

NY Board Upholds $15 Minimum Wage for Fast-Food Workers

 

A state oversight board on Wednesday upheld the decision by New York Gov. Andrew Cuomo's administration to gradually raise the hourly minimum wage for many fast-food workers to $15.

The New York Industrial Board of Appeals rejected the National Restaurant Association's arguments that that the wage order was unconstitutional, arbitrary, unsupported by the evidence and focused improperly on fast-food chains with more than 30 locations.

The industrial board, whose members are appointed by the governor, said it's authorized only to determine whether the administration's actions were lawful under New York's labor statutes. A wage board heard testimony earlier this year and recommended the wage increases, which were approved by the state labor commissioner in July.

"We find nothing in the statute to prohibit (the labor commissioner) from issuing a minimum wage order that classifies employees based on the number of locations their employers are affiliated with," the industrial board ruled. The commissioner has authority under the law to investigate the adequacy of wages in any occupation, which can be done "for a subset of a segment of an industry" and requires a record establishing "a factual basis for doing so."

The wage board and commissioner concluded current wages were insufficient to meet workers' cost of living. They also concluded that fast-food chains with 30 or more restaurants nationally are "better equipped to absorb a wage increase due to greater operational and financial resources and brand recognition."

The restaurant association said it is "extremely disappointed" with the ruling and will go to court. "We are committed to helping the restaurant community continue to grow and create jobs across the state and plan to take legal action against this arbitrary mandate which is contrary to law," spokeswoman Christin Fernandez said.

New York's minimum wage will rise to $9 an hour on Dec. 31 for most workers under state law.

About 200,000 fast-food chain employees will see their minimums rise then to $10.50 an hour in New York City and $9.75 elsewhere under the commissioner's order.

Their wages will rise after that in three annual increments to $15 by the end of 2018 in New York City and in six increments to $15 by July 1, 2021 across the rest of the state.

(via ABC News)

Economic Considerations of Eliminating Tips (Infographic)

 

Is the U.S. restaurant tipping model on its way out? Amid concerns over whether compensation for back-of-the-house and front-of-the-house employees is fair and how the push for raising minimum wage will impact cost-cutting measures, the tip reform movement is stirring up controversy. Earlier this month, Danny Meyer, CEO of Union Square Hospitality Group, made waves in the industry when he called tipping a “broken system” and announced that his restaurants would phase out tipping by January. The pros and cons of this consideration have impact from the board room to the dining room, and servers, cooks, owners and customers have a stake.

But what about the economic impact? Reporting tips for tax purposes is one of the most complex requirements for restaurants and their employees. Here is a look at the potential effects of eliminating tipping:

Owners Adjust for Higher Wages, Lose the Tip Tax Credit

Federal law allows restaurants to pay servers $2.13 per hour with the server’s tips expected to meet or exceed federal minimum wage requirements. Some states — like New York which will have a $15 minimum wage for fast food workers in 2016 —require a higher minimum wage. Additionally, there is a federal income tax credit (IRC 45B) that the restaurant can take for all tips reported by the server in excess of $5.15 per hour. This gives the restaurant an incentive for encouraging their employees to report all their tips. In a non-tipping environment, restaurants would have to pay higher wages and higher employment taxes, but would have a larger deduction for the increased wages and payroll taxes.

The federal FICA tip credit has been a significant benefit for a number of restaurants over the years. Restaurants that are considering changing to a no-tipping policy may be giving up a substantial tax benefit, and need to take that into account when setting menu prices or additional service charges to help finance the increase in non-tipped wages.

Some fine dining establishments who have eliminated tipping have added a service, hospitality or administrative charge, while others have raised menu prices to compensate. It's important to note that service charges do not constitute tips for the purposes of the federal FICA tip credit.

Employees gain predictability, but not guaranteed higher earnings

Servers are required by law to report all tips, but the IRS has suggested that as much as 40 percent of restaurant tips are not reported. If this is true, many employees are paying less income and employment tax than they should in a tipped environment. In a non-tipped establishment, employees receive wages which may or may not be as much as they earn in a tipping situation. Ideally, the non-tipped wage would create more predictability in employees’ income, eliminating the uncertainty associated with fluctuating tips from shift to shift. However, some will do better and some worse under a no-tipping model. Bonuses may be necessary to retain servers.

Calculation: Let’s take a look at a simple example of how the FICA tip tax credit works.

It remains to be seen whether the tip elimination trend will be a mere crest or a tidal wave of change in the restaurant industry. It is clear, however, that the business impact could be substantial, and restaurants would need to adapt practices accordingly. Even if restaurants and employees can thrive on a no-tipping model, how will customers react? Stay tuned to our blog in the weeks ahead as we explore the potential implications for players throughout the industry.

(via Fast Casual)

Positive Sales Trajectory Has More Room To Run

 

Restaurant sales rose for the eighth consecutive month in September, with total monthly volume jumping $2.4 billion during the 8-month period. Despite the recent gains, a new survey indicates that one-half of consumers are still not patronizing restaurants as often as they would like, according to the NRA’s chief economist Bruce Grindy. His Economist’s Notebook commentary and analysis appears regularly on Restaurant.org and Restaurant TrendMapper.

Restaurant industry sales continued to grow at a steady pace in September, according to preliminary data from the U.S. Census Bureau. Eating and drinking place sales totaled $52.7 billion on a seasonally-adjusted basis in September, which represented a strong 0.7 percent increase over a sales total of $52.3 billion in August.

The solid restaurant sales gain came in the midst of lackluster September job growth and continued trepidation among consumers when it comes to both the economy and their own personal finances.

September represented the eighth consecutive month of restaurant sales growth, with total monthly sales volume increasing by 4.7 percent (or $2.4 billion) during the 8-month period. In contrast, overall retail sales increased 3.1 percent during the last 8 months, while grocery store sales rose by just 1.0 percent.

Despite the recent sales gains, new research indicates that one-half of consumers have yet to get their fill of restaurants. According to a national survey conducted September 24-27 by ORC International for the National Restaurant Association, 48 percent of adults say they are not eating on the premises of restaurants as frequently as they would like. Similarly, 50 percent of consumers say they are not purchasing take-out or delivery as often they would like.

While it’s not surprising that a majority of consumers in lower-income households say they would like to be using restaurants more frequently, it’s worth noting that individuals in higher-income households are also reporting a desire to increase their patronage. In fact, roughly three in 10 consumers in households with income above $75,000 say they are not utilizing either on-premises or off-premises options as often as they would like.

With these higher-income households accounting for nearly six in 10 dollars spent in restaurants, their elevated levels of pent-up demand suggest that the industry’s current positive sales trajectory has a lot more room to run.

(via National Restaurant Association)