California’s fast-food industry is once again at a crossroads. Following the April 1, 2024, minimum wage increase to $20 per hour (as previously covered here), fast-food operators have struggled with higher labor costs, price increases, job losses, and store closures. Now, the Fast Food Council is considering another increase to $20.70 per hour, with a final vote expected in April or May 2025.
If the proposed wage hike is approved, fast-food employers will need to act quickly to adjust labor budgets, pricing strategies, and compliance measures. Here are five key steps operators should start considering now to prepare for another wage increase.
Five Steps Fast-Food Employers Should Start Considering Now
1. Review Payroll and Budget for the Potential Wage Increase
If the new $20.70 per hour wage is approved, employers must:
- Ensure payroll systems are updated to reflect the new rate as soon as it takes effect.
- Adjust labor budgets to account for increased wage costs.
- Project financial impacts on operations, including potential reductions in hours, staffing, or menu price adjustments.
2. Plan for Higher Overtime Costs
With a higher minimum wage, overtime rates will also increase:
- 1.5x Overtime Pay: $31.05 per hour
- 2x Double-Time Pay: $41.40 per hour
Employers should evaluate scheduling practices, limit unnecessary overtime, and consider staffing adjustments to manage costs.
3. Update Employee Notices and Pay Stubs
If the increase is approved, fast-food operators will need to:
- Update employee notices as required by Labor Code section 2810.5 to reflect the new wage.
- Ensure pay stubs are accurate, displaying the correct new hourly rate and applicable overtime calculations.
4. Assess the New Exempt Employee Salary Threshold
A higher minimum wage means exempt employees will also require a higher salary to maintain their exempt status. If the wage increases to $20.70 per hour, the new minimum salary for exempt employees in covered fast-food businesses will be:
$20.70 x 2 x 2,080 = $86,112
That means managers and other exempt employees would need to be paid at least $86,112 annually to remain exempt from overtime laws. Employers should start reviewing their exempt employee classifications now and determine if reclassification or salary adjustments will be necessary.
5. How Employers Are Responding to Rising Labor Costs
The latest economic data on California’s $20 per hour minimum wage highlights the widespread financial strain on fast-food operators, with job losses, reduced hours, and increased menu prices becoming unavoidable realities. According to a February 2025 report by Berkeley Research Group (BRG):
- California’s fast-food sector lost 10,700 jobs (-1.9%) between June 2023 and June 2024, marking the worst employment trend in decades outside of economic recessions.
- Nearly 89% of surveyed fast-food operators reduced employee hours in the first few months after the wage increase, and 87% expect to make further cuts in the next year.
- Menu prices in California’s fast-food sector increased by 14.5% from September 2023 to October 2024, almost double the national average (8.2%), making fast food significantly more expensive for consumers.
- 35% of operators reduced employee benefits, and automation adoption has increased as businesses look for ways to offset labor costs.
With the Fast Food Council now considering an increase to $20.70 per hour, these trends are expected to continue. Employers will likely make additional reductions in staffing and hours, further raise menu prices, and accelerate automation investments to maintain operations. More layoffs and restaurant closures could be on the horizon as businesses struggle to absorb rising labor costs.
What’s Next for Fast-Food Operators?
The Fast Food Council is expected to vote on the proposed wage increase in April or May 2025. If approved, employers will need to move quickly to implement changes and adjust business strategies to stay competitive.
By planning now, fast-food operators can mitigate financial strain, ensure compliance with labor laws, and make informed business decisions before the next potential wage increase takes effect.