Employers Cope with the Implementation of California’s $20 Fast Food Minimum Wage.

If you own a business of any sort, you could have predicted the immediate outcome of California’s infamous $20 fast food minimum wage law that went into effect a few weeks ago on April 1, 2024. Most business owners could have predicted that fast food restaurants would be quietly raising prices and there would be mass layoffs of delivery drivers by restaurants like Pizza Hut. The fallout in the California fast food industry has begun and we are only seeing inklings of the fast food industry’s future.

First, the labor costs to employers will and have begun to increase significantly. For example, fast food managers will need to earn at least twice the industry’s minimum wage on a 40 hour week, which is now $83,200 per year. That means managers who do not earn at least $83,200 per year will not be considered an “exempt employee” and will be entitled to overtime compensation. It is possible that many managers will be forced into demotions or the locations they manage will be forced to close because labor costs have increased exponentially in such a short time.

In addition, employers have already begun trying to lower labor costs by cutting back employees’ hours. This means that the fast food restaurants will be staffed by fewer live people. Yes, we may now have to finally resign to ordering our food at the order kiosk or through an online app. However, at some point, the cost of paying higher labor costs will outweigh the cost of implementing further automation. What does this mean? Well, that means we may have fewer and fewer live workers available in fast food restaurants. We already have fewer and fewer live people to take our orders. The automated services and online ordering are likely here to stay and only time will tell if employers can find ways to automate the way in which the food is actually made.

Simultaneously, fast food restaurants have increased their prices, which may cause customers to tighten their budgets and spend less. Some customers have noticed a few menu items already increasing by a few dollars – not cents. Even a cursory review online will reveal that certain menu items at the same fast food restaurant are already a few dollars more expensive in California than in other states. You essentially get the same burger combo meal as the customer in Texas, but your combo meal is a few bucks more expensive because you ordered it in California.

In addition, some workers have noticed that their pay raise was almost immediately met with higher grocery prices. These are the same higher grocery prices restaurants are dealing with as well. The price of higher groceries for restaurant owners has been passed on to consumers who now may tighten their spending habits at a time when restaurant owners (who must cover higher expenses) are needing consumers to spend more. The consumers may choose to eat at home or eat at actual sit-down restaurants because the price differential between fast food and a nice sit down meal has become far less. For fast food restaurants and their owners, the simultaneous increase in the 1) worker’s hourly rate, 2) manager’s salary, 3) price of menu items, and 4) price in groceries can be a difficult (if not fatal) balancing act.