The New Standard for Fast Food Wages in California
Starting April 1, 2024, California implemented a law mandating a minimum wage of $20 per hour for fast food workers employed by chains with at least 60 locations nationwide. This legislation, known as AB 1228, was designed to improve wages in the fast food sector. However, it has led to significant changes for restaurant owners, including increased labor costs, adjustments to staffing and scheduling, and considerations for menu pricing.
As of April 2025, the Fast Food Council established by AB 1228 is contemplating an additional wage increase to $20.70 per hour, reflecting a 3.5% cost-of-living adjustment. A decision on this proposal is expected in the coming months.
This new law was created to help fast food workers keep up with the cost of living. But for business owners, it's causing a lot of questions-how much more will I be paying in wages each month? Will I need to cut hours or raise prices? What can I do to stay profitable?
As of April 2025, the Fast Food Council established by AB 1228 is contemplating an additional wage increase to $20.70 per hour, reflecting a 3.5% cost-of-living adjustment. A decision on this proposal is expected in the coming months.
This new law was created to help fast food workers keep up with the cost of living. But for business owners, it's causing a lot of questions-how much more will I be paying in wages each month? Will I need to cut hours or raise prices? What can I do to stay profitable?
Who Is Affected by the New $20 Minimum Wage Law?
Not every fast food restaurant in California is affected by the new $20 minimum wage-but many are. The law applies to limited-service restaurants that are part of a nationwide chain with at least 60 locations. This includes most well-known fast food brands operating in the state, such as burger, chicken, pizza, and sandwich chains.
The key requirements are -
1. Your restaurant is part of a chain with 60 or more locations across the U.S.
2. The food is sold for quick service, often eaten off-site or at limited seating.
3. There's minimal table service-customers usually order at a counter, kiosk, or drive-thru.
Even if your location is franchised, it still counts if the parent brand has 60+ outlets.
There are some exceptions. For example, if your fast food location is a bakery that bakes and sells bread onsite, it might be exempt. But this exception is narrow and doesn't apply to most operators.
This law is part of Assembly Bill 1228 and was designed to specifically target large fast food chains, not small, independent restaurants. However, it's important to double-check your status. If you're unsure whether your business qualifies, it's worth reviewing the law carefully or speaking with a labor expert.
Failing to follow the law could lead to fines, penalties, or even lawsuits. So even if you think you might be exempt, it's smart to make sure. Knowing whether or not you're affected is the first step in adapting your business to this major wage change.
The key requirements are -
1. Your restaurant is part of a chain with 60 or more locations across the U.S.
2. The food is sold for quick service, often eaten off-site or at limited seating.
3. There's minimal table service-customers usually order at a counter, kiosk, or drive-thru.
Even if your location is franchised, it still counts if the parent brand has 60+ outlets.
There are some exceptions. For example, if your fast food location is a bakery that bakes and sells bread onsite, it might be exempt. But this exception is narrow and doesn't apply to most operators.
This law is part of Assembly Bill 1228 and was designed to specifically target large fast food chains, not small, independent restaurants. However, it's important to double-check your status. If you're unsure whether your business qualifies, it's worth reviewing the law carefully or speaking with a labor expert.
Failing to follow the law could lead to fines, penalties, or even lawsuits. So even if you think you might be exempt, it's smart to make sure. Knowing whether or not you're affected is the first step in adapting your business to this major wage change.
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Payroll Implications for Restaurant Owners
With the new $20 minimum wage now in effect, fast food restaurant owners across California are feeling the pressure on their payroll. For many, this is the single largest increase in hourly wages they've ever had to absorb-jumping 25% or more overnight. And it's not just the base wage that changes. This increase affects several parts of your payroll process.
First, let's talk about labor costs. If you're paying team members $4 more per hour, even a small staff of 10 employees working full time adds thousands of dollars in monthly expenses. When you include payroll taxes, workers' compensation insurance, and potential overtime, your total labor burden increases even more.
Second, there's the issue of wage compression. This happens when entry-level wages rise, but higher-paid employees (like shift leads or assistant managers) don't get similar bumps. If someone who was making $20 is now earning the same as new hires, you may need to adjust wages for your more experienced team to avoid turnover or morale issues.
Also, don't forget split shift premiums and overtime pay. If these apply to your staff, the increase in base wages means these extra payments will also cost more. Payroll software and time tracking tools may need to be updated to reflect new rules and ensure compliance.
To avoid mistakes, now is a good time to audit your payroll systems, double-check tax withholdings, and make sure you're calculating pay correctly. These updates can help you stay compliant and prevent costly errors.
First, let's talk about labor costs. If you're paying team members $4 more per hour, even a small staff of 10 employees working full time adds thousands of dollars in monthly expenses. When you include payroll taxes, workers' compensation insurance, and potential overtime, your total labor burden increases even more.
Second, there's the issue of wage compression. This happens when entry-level wages rise, but higher-paid employees (like shift leads or assistant managers) don't get similar bumps. If someone who was making $20 is now earning the same as new hires, you may need to adjust wages for your more experienced team to avoid turnover or morale issues.
Also, don't forget split shift premiums and overtime pay. If these apply to your staff, the increase in base wages means these extra payments will also cost more. Payroll software and time tracking tools may need to be updated to reflect new rules and ensure compliance.
To avoid mistakes, now is a good time to audit your payroll systems, double-check tax withholdings, and make sure you're calculating pay correctly. These updates can help you stay compliant and prevent costly errors.
How to Recalculate Labor Cost Percentages
Now that wages have gone up, it's important to understand how they affect your labor cost as a percentage of sales-a key number every restaurant owner should track. Labor cost percentage shows how much of your revenue is being spent on wages and related expenses. If this number gets too high, your profit margins shrink quickly.
Here's a simple way to calculate it -
Labor Cost / Total Sales x 100 = Labor Cost Percentage
Let's say before the wage increase, your weekly labor cost was $7,500 and your total weekly sales were $30,000. That puts your labor cost percentage at 25%. After the $20 minimum wage kicks in, that same weekly labor cost might rise to $9,000. With no increase in sales, your new labor cost percentage jumps to 30%.
That 5% difference might not seem like much at first, but over the course of a year, it can add up to tens of thousands of dollars in lost profits.
To stay in control, you need to adjust your budgets and sales targets based on these new numbers. You may need to raise your weekly sales goal, rework your staffing schedule, or cut unnecessary hours during slow shifts.
It's also helpful to run these numbers regularly-weekly or monthly-to see how small changes in scheduling, sales, or staffing are affecting your bottom line. Keeping a close eye on your labor cost percentage can help you stay profitable, even as wages rise.
Here's a simple way to calculate it -
Labor Cost / Total Sales x 100 = Labor Cost Percentage
Let's say before the wage increase, your weekly labor cost was $7,500 and your total weekly sales were $30,000. That puts your labor cost percentage at 25%. After the $20 minimum wage kicks in, that same weekly labor cost might rise to $9,000. With no increase in sales, your new labor cost percentage jumps to 30%.
That 5% difference might not seem like much at first, but over the course of a year, it can add up to tens of thousands of dollars in lost profits.
To stay in control, you need to adjust your budgets and sales targets based on these new numbers. You may need to raise your weekly sales goal, rework your staffing schedule, or cut unnecessary hours during slow shifts.
It's also helpful to run these numbers regularly-weekly or monthly-to see how small changes in scheduling, sales, or staffing are affecting your bottom line. Keeping a close eye on your labor cost percentage can help you stay profitable, even as wages rise.
Pricing Adjustments
When labor costs go up, many restaurant owners wonder how much of that increase can be passed on to the customer without losing business. The truth is, with a $20 minimum wage now required for fast food workers in California, raising prices-even just a little-is almost unavoidable for most operators.
The key is to make pricing changes carefully and strategically. A sudden, large price hike across your entire menu can push customers away. But small increases, especially on high-margin or popular items, are often easier for customers to accept. For example, adding 25 to 50 cents to your top-selling items may help cover the extra wage costs without causing sticker shock.
Another approach is to use bundling or value meals. If you offer a combo meal that feels like a deal to the customer but still covers your increased costs, it's a win-win. Many fast food chains have had success keeping entry-level pricing low while encouraging customers to upgrade or add sides.
It's also important to communicate any price changes clearly. Most customers understand that the cost of doing business is rising, especially in California. A simple sign near the counter or a short message on your digital menu board can help explain that new pricing reflects changes in employee wages and food costs.
You don't have to overhaul your entire menu at once. Start by reviewing item-level profitability and testing price increases in small ways. Then monitor customer response and make adjustments as needed.
The key is to make pricing changes carefully and strategically. A sudden, large price hike across your entire menu can push customers away. But small increases, especially on high-margin or popular items, are often easier for customers to accept. For example, adding 25 to 50 cents to your top-selling items may help cover the extra wage costs without causing sticker shock.
Another approach is to use bundling or value meals. If you offer a combo meal that feels like a deal to the customer but still covers your increased costs, it's a win-win. Many fast food chains have had success keeping entry-level pricing low while encouraging customers to upgrade or add sides.
It's also important to communicate any price changes clearly. Most customers understand that the cost of doing business is rising, especially in California. A simple sign near the counter or a short message on your digital menu board can help explain that new pricing reflects changes in employee wages and food costs.
You don't have to overhaul your entire menu at once. Start by reviewing item-level profitability and testing price increases in small ways. Then monitor customer response and make adjustments as needed.
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Staffing Strategy and Schedule Optimization
With higher wages now required for many fast food workers in California, getting smarter about how you staff your restaurant is more important than ever. Labor is often one of the biggest expenses in a food business, and when hourly wages go up, every extra shift or unnecessary hour on the clock starts to impact your bottom line quickly.
The first step is taking a close look at your current staffing levels. Are you scheduling more employees than needed during slower times of the day? Could you stagger shifts better to match customer traffic patterns? Reviewing your sales data by hour can help you adjust your staffing to be more efficient without sacrificing service.
A well-planned work schedule helps ensure you're getting the most out of every labor hour. Cross-training your team is another smart move. When employees can handle multiple tasks - like running the register, prepping food, and cleaning up - you can operate with fewer people during each shift.
Also, be sure to avoid last-minute schedule changes. These can lead to extra costs, especially if they result in overtime or require split shift premiums. Scheduling software can help you stay on top of compliance rules and make smarter decisions about who works when.
Finally, be transparent with your team about why these changes are happening. Employees are more likely to cooperate with adjusted hours or new responsibilities when they understand the bigger picture. It's all about working together to keep the business strong while meeting the new wage requirements.
The first step is taking a close look at your current staffing levels. Are you scheduling more employees than needed during slower times of the day? Could you stagger shifts better to match customer traffic patterns? Reviewing your sales data by hour can help you adjust your staffing to be more efficient without sacrificing service.
A well-planned work schedule helps ensure you're getting the most out of every labor hour. Cross-training your team is another smart move. When employees can handle multiple tasks - like running the register, prepping food, and cleaning up - you can operate with fewer people during each shift.
Also, be sure to avoid last-minute schedule changes. These can lead to extra costs, especially if they result in overtime or require split shift premiums. Scheduling software can help you stay on top of compliance rules and make smarter decisions about who works when.
Finally, be transparent with your team about why these changes are happening. Employees are more likely to cooperate with adjusted hours or new responsibilities when they understand the bigger picture. It's all about working together to keep the business strong while meeting the new wage requirements.
Long-Term Considerations
The $20 minimum wage is not a one-time change - it could be just the beginning. Under the new law, California has created a Fast Food Council, which has the power to propose annual wage increases for fast food workers starting in 2025. That means restaurant owners should start thinking beyond the current rates and prepare for the possibility of steady increases over the next few years.
Planning ahead is key. If you only react to wage changes as they happen, you may find yourself constantly scrambling to adjust prices or cut costs. Instead, take a long-term view. Run projections for what your labor costs might look like if the minimum wage increases by $1 or $2 each year. Then use those numbers to guide decisions about pricing, staffing, and investment in technology.
You may also want to rethink your pay structure. As base wages rise, the gap between entry-level workers and supervisors shrinks. To maintain morale and avoid turnover, you might need to raise wages across multiple roles, not just for those affected by the law.
Technology can play a big role in helping you adapt. From self-service kiosks to automated scheduling tools, even small changes can help you operate more efficiently and reduce your reliance on labor-heavy processes.
Planning ahead is key. If you only react to wage changes as they happen, you may find yourself constantly scrambling to adjust prices or cut costs. Instead, take a long-term view. Run projections for what your labor costs might look like if the minimum wage increases by $1 or $2 each year. Then use those numbers to guide decisions about pricing, staffing, and investment in technology.
You may also want to rethink your pay structure. As base wages rise, the gap between entry-level workers and supervisors shrinks. To maintain morale and avoid turnover, you might need to raise wages across multiple roles, not just for those affected by the law.
Technology can play a big role in helping you adapt. From self-service kiosks to automated scheduling tools, even small changes can help you operate more efficiently and reduce your reliance on labor-heavy processes.
Adapting to the New Reality of Labor in California
The rise of the minimum wage for fast food workers to $20 an hour marks a turning point for restaurant owners in California. This isn't just a small wage bump - it's a shift that affects your entire business model, from daily operations to long-term planning. Whether you run one store or manage several locations, the way you handle labor, pricing, and scheduling now will directly impact your ability to stay profitable in the future.
The most important thing is to be proactive. Waiting to see how things play out can leave you behind the curve. Instead, review your current payroll setup, reassess your labor cost percentage, and update your pricing strategy to reflect the new reality. Tools like scheduling software, labor forecasting, and point-of-sale reporting can make this process much easier and more accurate.
Also, take time to communicate with your team. Let them know how you're responding to the new wage laws and what changes they can expect. When employees understand the challenges you're facing and see that you're making thoughtful decisions, they're more likely to stay engaged and supportive.
California's labor landscape is changing fast-and this $20 minimum wage is likely just the beginning. By adjusting now and staying ready for future increases, you'll protect your margins, keep your team stable, and continue to grow your business in a challenging but manageable environment.
The most important thing is to be proactive. Waiting to see how things play out can leave you behind the curve. Instead, review your current payroll setup, reassess your labor cost percentage, and update your pricing strategy to reflect the new reality. Tools like scheduling software, labor forecasting, and point-of-sale reporting can make this process much easier and more accurate.
Also, take time to communicate with your team. Let them know how you're responding to the new wage laws and what changes they can expect. When employees understand the challenges you're facing and see that you're making thoughtful decisions, they're more likely to stay engaged and supportive.
California's labor landscape is changing fast-and this $20 minimum wage is likely just the beginning. By adjusting now and staying ready for future increases, you'll protect your margins, keep your team stable, and continue to grow your business in a challenging but manageable environment.
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Frequently
Asked Questions
What types of restaurants are considered "fast food" under minimum wage law?
Restaurants with limited or no table service, where customers order and pay before eating, typically fall under the fast food category.
What is the Fast Food Council, and what does it do?
It's a new state council with the authority to recommend future wage increases for fast food workers starting in 2025.
What types of restaurants are considered
Restaurants with limited or no table service, where customers order and pay before eating, typically fall under the fast food category.
How can I calculate my new labor cost percentage?
Divide total labor costs by total sales, then multiply by 100. This helps you track how much revenue is spent on wages.
What kind of scheduling software can help with compliance?
Look for tools that offer labor forecasting, real-time tracking, and automated break reminders to avoid wage violations.
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