With the 2020 election in the rearview mirror, businesses are looking forward to beginning 2021 with more clarity. Restaurants are particularly keen to understand what new legislative measures have passed or are on the horizon as they continue to navigate the acute—and devastating—impact of the coronavirus on the industry.
Of most interest is the fate of the Real Economic Support That Acknowledges Unique Restaurant Assistance Needed To Survive (RESTAURANTS) Act, passed by the House of Representatives in October.
If passed by the Senate, the act would provide to non-publicly traded restaurants $120 billion of relief through a grant (rather than a loan that is provided under the Paycheck Protection Program) that would cover the difference between 2019 and 2020 revenues. Restaurants would be able to use the funds for any expenses deemed essential by the secretary of the Treasury Department.
For the restaurant industry, such a program is a much-needed lifeline, especially as restaurants are likely to encounter more mandatory restrictions and/or closures in the face of rising coronavirus cases around the country.
However, changes at the federal level are only one piece of the picture that restaurant owners and operators should understand. Three other areas that may affect restaurants’ bottom lines because of changes to state and local law are the following:
- Minimum wage
- Third-party caps on fees
- Paid family leave
This year began with minimum wage increases in 21 states, 14 of which (Arizona, Arkansas, California, Colorado, Illinois, Maine, Maryland, Massachusetts, Michigan, Missouri, New Jersey, New Mexico, New York and Washington) increased their rates through legislation or ballot initiatives. The remaining seven states (Alaska, Florida, Minnesota, Montana, Ohio, South Dakota and Vermont) index their rates to cost of living increases.
President-elect Joe Biden ran on a platform of increasing the minimum wage to $15 from the current $7.25, but it is too soon to predict whether passing federal legislation will be successful. The election results of the U.S. Senate will not be known until early 2021, as a result of the two Georgia Senate seat runoffs, which could yield a 50/50 split in the Senate if the Democrats prevail in the Georgia election (with Vice President-elect Harris breaking any tie in voting).
Many states and cities are not waiting for a potential federal law to address the minimum wage issue. Below are some jurisdictions that recently passed minimum wage laws or are considering them:
|Florida||Florida residents approved a ballot proposal to raise the state’s minimum wage from $8.46 to $15 an hour over five years.|
|Kentucky||Sen. Reggie Thomas pre-filed a bill to increase the state’s minimum wage, which at $7.25 has not changed in 13 years, to $15 over five years.|
|New York||Sen. Jessica Ramos introduced a bill that would index the minimum wage to inflation increases. When inflation is positive, the minimum wage would increase each October until it reaches $15.
New York City raised its minimum wage to $15 in 2019. Downstate, the minimum wage is scheduled to reach $15 by 2021; and upstate, the minimum wage is scheduled to increase to $12.50 in 2021 The proposal would apply to all areas of the state.
|Kansas City, MO||A city council committee is deliberating an increase to the minimum wage to $15 by 2022. The increase would apply to employees who work at businesses that receive 25% or more of their annual funding from the city.|
|Portland, Maine||Portland residents approved a ballot proposal to raise the city’s minimum wage to $15 over three years by 2024.|
Third-Party Caps on Fees
When it became clear that restaurants were providing an essential service through deliveries and take-out services, but still were struggling to keep their doors open during the pandemic, a number of cities rolled out caps on the fees that third-party delivery services (e.g. Uber Eats, DoorDash, etc.) charged restaurants. Without regulation, these fees could run up to 40% of the customer’s purchase price, siphoning away a sizeable chunk of profit from the restaurant.
Cities that implemented temporary caps as a result of the pandemic include Denver (15%), Las Vegas (15%), Los Angeles (15%), New York (20%), Oakland (15%), Philadelphia (15%), Portland, Ore. (10%), San Francisco (15%), Seattle (15%) and Washington, D.C. (15%).
Steps taken at the state level and by other cities to assist the restaurant industry with third-party delivery fees include the following:
|California||Voters approved Prop 22, which will allow drivers for third-party delivery companies, such as Uber and DoorDash, to continue to work as independent contractors. Had the measure failed, such drivers would have been classified as full-time employees, which ultimately could have resulted fewer drivers due to the higher company costs that come with full-time employee status (benefits, e.g.). This likely would have resulted in fewer delivery cars and thus longer wait times and higher delivery costs.|
|Chicago, IL||The city of Chicago is again pursuing a fee cap on third-party delivery companies after its ordinance in May to apply a 5% cap failed. While the exact cap has not been announced, affected businesses should continue to monitor developments.|
Paid Family and Medical Leave
Washington, D.C., and nine U.S. states (California, Colorado, Connecticut, Massachusetts, New Jersey, New York, Oregon, Rhode Island and Washington,) have a paid family and medical leave program. President-elect Joe Biden supports passing legislation that would provide 12 weeks of paid family and medical leave.
Below are potential developments to monitor:
|Colorado||Colorado voters approved Proposition 118 to create a paid family and medical leave program, scheduled to launch in 2024.|
|Delaware||A priority of State Senator-elect, Sarah McBride, is a paid family and medical leave program.|
|Maine||Maine Democrats may resurrect LD 1410 in 2021, which would create a paid family and medical leave benefits program.|
|Vermont||Newly elected Lieutenant Governor, Molly Gray, ran on a platform that includes a paid family and medical leave program.|
Small changes can have a enormous effect on restaurants’ profitability. Increasing costs to restaurant operators through wage increases or paid family leave has obvious implications for the industry, which even in normal times operates on very thin profit margins. Any increase in wages—typically the largest expense—will have a meaningful impact on net profit.
This is especially true during times of economic stress and when revenue is down as a result of a decline in patronage. While states and localities are examining ways to alleviate some of the pressures on restaurants caused by the pandemic, these may not be sufficient to offset financial headwinds. Restaurant owners and operators should pay close attention to legislative developments as we move toward and through 2021.
This article originally appeared in BDO USA, LLP’s Selections Blog (Dec. 3, 2020). Copyright © 2020 BDO USA, LLP. All rights reserved. www.bdo.com
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