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National Restaurant Association - Why a $10.10 starting wage is bad for federal contractors

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Why a $10.10 starting wage is bad for federal contractors

What would a $10.10 starting wage mean for restaurants that operate on federal properties?

Restaurants placed at a severe competitive disadvantage. Scaled-back opportunities for tipped employees. Or, in the worst case, outright closure, and with it, a loss of jobs and opportunities.

That’s the message the National Restaurant Association is giving the U.S. Department of Labor, which issued a proposed rule in June that would raise the starting wage for federal contractors from $7.25 to $10.10 starting Jan. 1, 2015, and the minimum cash wage for tipped employees from $2.13 to $4.90. Both increases would apply to contractors renewing or entering contracts on Jan. 1, 2015, or later, with increases tied to inflation going forward. After the initial wage hike, the minimum cash wage for tipped employees would increase 95 cents each year until it reaches 70 percent of the minimum wage. 

The NRA joined the International Franchise Association in submitting comments on the proposal before the August 1 deadline. The comments detailed why the mandatory wage increases may prove to be an insurmountable hurdle for many restaurants on military bases and other federal properties.

“As a result of the significantly increased costs…the Proposed Rule will place a number

of [restaurants] in the unenviable position of having to choose between the continued viability of their business and their continued work on federal contracts,” the NRA and IFA wrote in their comments. “For some who only operate locations in connection with federal contracts, there will be no choice—simple economic principles will drive them out of business and, rather than lowering turnover, the Proposed Rule will have the perverse impact of yielding 100% turnover.”

In their comments, the NRA and IFA identified a number of problems with the proposed rule:

  • Restaurants face unique challenges: For many federal contractors, competition with similar businesses ends once they secure the contract. But restaurants on military bases and other federal properties still face competition from nearby restaurants located off the federal property, and they’d be put at a competitive disadvantage under the proposed rule, the NRA and IFA wrote. A restaurant location in a federal building would be required to pay a minimum of $10.10 per hour, while a similar location a just a few blocks away could pay $8. “Obviously, this puts the business in the federal building at a significant competitive disadvantage. It does not get paid by the federal government—it pays the federal government—and cannot simply request that the government pay for the wage increase.”
  • President overstepping authority: Two acts of Congress—The Davis-Bacon Act and Service Contract Act—give Congress, not the president, authority to set the federal minimum wage, the NRA and IFA wrote. “Neither the president nor the [Department of Labor] has any authority to override such acts of Congress by setting a new minimum wage that contractors must pay, in a manner that is inconsistent with the statutes that already govern the issue,” the NRA and IFA wrote.
  • Massive tipped wage increase: The minimum cash wage for tipped employees working for federal contractors would more than double, moving to $4.90 from the current $2.13 immediately, and gradually rising to 70 percent of the minimum.. Such a dramatic increase could mean major pay cuts for tipped employees, as restaurants unable to afford the increase may be forced to radically alter their pay structures, the NRA and IFA wrote.

A final rule on the minimum wage is expected to be released in November.

Read the NRA’s comments on the proposed federal contractor minimum wage increase

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