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Obamacare, Rising Minimum Wage and Gluten-Free what on my menu?

Jan 08, 2014

By Joshua Korn

Appetizers:

Implementation of the 2010 Affordable Care Act passionately known as “Obamacare” could be one of the greatest challenges restaurant operators will ever face. The ACA will put significant cost and administrative pressures on employers as they prepare for massive changes in the health insurance system, including complex new reporting rules and penalties for so-called “large employers” who fail to offer full-time employees and their dependents the opportunity to enroll in affordable, minimum-value health plans starting in 2015. Restaurants are likely to feel the law’s impact more than many other businesses because they are labor-intensive, with low profit margins and millions of employees working flexible schedules.

 

Entrees:

2014 brings a new era in restaurant profitability, sustainability and controversy since Bills have been introduced in the House and Senate to dramatically increase the federal minimum wage. The Fair Minimum Wage Act of 2013 (S. 460, by Sen. Tom Harkin, and H.R. 1010, by Rep. George Miller) would increase the federal minimum wage from the current $7.25 to $10.10 over two years and three months—a nearly 40 percent increase—and automatically index the wage to inflation each year thereafter, regardless of economic conditions. The legislation also calls for increasing the minimum cash wage for tipped employees until it reaches 70 percent of the federal minimum wage. This means the minimum cash wage for tipped employees would triple, in stages, to $7.07 according to the national restaurant association.

 

Desserts:

Restaurants and food manufacturers who market food or beverage items as “gluten free,” must meet all requirements of a new, regulatory definition of that term, the U.S. Food and Drug Administration said in a final rule issued August 3, 2013. According to the FDA’s final rule, which was published in the Federal Register Aug. 5 2013, restaurants serving food or beverages  termed “gluten-free,” “free of gluten,” “without gluten” or “no gluten,” are making a food-labeling claim that should be consistent with the new regulatory definition for gluten-free.

 

The new federal definition, effective September 4, 2013 with a compliance date of August 5, 2014, would standardize the meaning of “gluten-free” claims across the food industry, the FDA said. In order to use the term “gluten-free” on labels, the food items must meet all of the requirements of the definition, including that they must contain less than 20 parts per million of gluten.

 

The FDA has broad discretion over food labels and since 1993 has held restaurants to certain standards if they make nutrient-content or health claims about menu items, such as “fat free” or “low cholesterol.” The agency has now added “gluten-free” to the list of FDA-regulated claims. In guidance accompanying the new “gluten-free” definition suggested that “any use of an FDA-defined food labeling claim … on restaurant menus should be consistent with the respective definitions.”

 

Gluten-free
Gluten-free

Silver Linings Playbook:

Okay now breathe, it’s not all doom and gloom. Turn adversity into advantage. You are in a unique position with an opportunity to re-evaluate your business plan and fire up your teams! Develop new innovations that are more efficient and drive more value. Create long lasting brand recognition and brand awareness by providing new products and services to your current clientele and gain sales with new clientele ultimately increasing your revenue and maximizing your profitability! The bottom line is that change happens and you need to evolve and adapt to these conditions which are primarily out of your control. So here’s where innovation and entrepreneurship are essential.

You may be thinking “sure easier said than done.” Well here’s some thought inspiring questions to get you motivated. Whether you are a seasoned veteran or first starting your business think about what reasons led you to opening your business in the first place. Were you nimble and flexible? Were you able to adapt and move when the proverbial cheese moved? What’s to stop you now?

 

All the answers to these new challenges start and end with your menu. So get back to the drawing board and look at what your serving, how much your serving, how many laborers do you need to produce it, are they full time or part time? Can you leverage cost of goods? Can you join a buying group? When’s the last time you had a price increase? When’s the last time you looked at your asset base needed to create your menu. Are you depreciating or expensing those assets? Are you taking advantage of the new 15 year depreciation schedules? All these strategies can change your cash flow and add value.

 

I encourage you to seize your opportunity by taking control and capitalizing on your menu development in 2014. Implement a cost structure and product mix that will enable you to get ahead of some the challenges you are going to encounter in the New Year as Obamacare, Increasing Labor Rates and of course the Gluten Free phenomena take effect.

If you still have questions or need help navigating through these new challenges please feel free to reach out us make sure you are optimized for performance excellence!

 

 

 

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Restaurant HR: How to Handle the I-9 Form

Nov 24, 2013

You may have heard about a problem with pre-populating Section 1 of the Form I-9 — ignore it!

There seems to be some confusion among our esteemed policy-making agencies about the issue of whether it is legal or not legal to pre-populate Section 1 of the Form I-9:

 

Immigration Customs Enforcement (“ICE”) and U.S. Citizenship and Immigration Service (“USCIS”) have provided inconsistent statements. Earlier this year, ICE stated at an American Immigration Lawyers Association meeting that it deemed pre-populating Section 1 a violation of I-9 regulations. However, more recently, both ICE and USCIS stated that they have no official position regarding pre-population and advised employers to follow the regulations (which are silent on the issue). An official guidance or policy from either agency has yet to appear.[1]

 

We will keep you posted but at this point it doesn’t appear necessary to make changes to current systems that gather new hire information for completing the I-9.

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Restaurant Tip Reporting- It’s the Law!

Oct 20, 2013

In April, the IRS announced it’s looking at new ways to utilize technology to increase restaurant tip reporting.  This could include updating the voluntary tip-compliance agreements the agency currently offers restaurant companies, such as the TRAC (Tip Reporting Alternative Commitment) and TRDA (Tip Rate Determination Agreement).

fair wage
Tips must be reported

 

Falling under the IRS responsibility of ‘Enforcement’, this measure is to ensure that restaurants provide employees with the proper information and tools needed to report all tips.  Historically, restaurants have complied by hanging posters, providing systematic education and informing employees about charged sales, charged tips and cash sales. All efforts are important components of protection from the threat of an IRS employer-only assessment.

 

Bottom line: Restaurants must provide employees with the proper information and tools to report all tips. For more information on tip reporting, visit the IRS online.

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Attention Restaurants: The National Labor Relations Board is Now Complete

Sep 29, 2013

Something restaurants need to be aware of: The National Labor Relations Board is now complete!

Why is that important? For the last decade, the National Labor Relations Board (NLRB) has not had a full panel and therefore called into question the legitimacy of its decisions. Remember the posters we thought that we were going to have to post in the restaurants that outlined the rights of our employees according to the NLRB? We ended up not having to post those posters because, among other reasons, it was ruled by a Federal Court that the posting rule and directive to literally every employer in the US could not be supported given the criteria for a quorum of Board Members before such decisions can become law. The National Labor Relations Act requires a quorum of not less than 3 Board members to make decisions legal. As of the second week of August 2013, they have a complete board.

Some of the restaurant practices that they may look into are:

• Employers’ responses to employees’ Facebook postings that are negative against the restaurant.
• Actions by employers against employees who choose to take photos or videos in the restaurants.
• Actions taken against an employee for complaining to others about wages or working conditions.
• Challenges by the employer on the employees’ right to organize.
• And lastly (again!) another poster to consider putting up in the restaurants.

For some interesting reading on the scope and focus of the National Labor Relations Act, see this link.

Our goal is inform companies of the practices/rules that are most practical for any operation, including restaurants. We will continue to keep you informed.

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Don’t Ask That: Some States Stop the Practice of Asking About Criminal Backgrounds during the Application Process

Aug 03, 2013

Requesting information on an application regarding a criminal background from a candidate for employment is becoming ill-advised in many states across the US and technically illegal in some. To date, Rhode Island, Hawaii, Massachusetts and Minnesota have passed laws that make this process illegal for private employers. Details vary but all versions of these laws either prohibit or severely restrict inquiries in the early phase of the application process.

Many other states have passed laws that do not allow this practice for public agencies and may extend the ban to include private employers. Obviously, there are concerns about the new laws, but given the trend in this process, and the apparent public support that is coming along with it, we recommend that our partners consider removing this question from the initial application process.

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Did you know . . . you have to provide the health inspection report?

Jul 01, 2013

Under the California Retail Food Code, restaurant operators are required to provide health inspection reports for any guest that requests to see them. A TV reporter recently visited several restaurants to test compliance and discovered almost no manager was aware of this rule.

 

Many states have started posting the inspections on-line but that unfortunately does not satisfy this requirement. When a guest comes into your restaurant and asks for the most recent health inspection, we are required to provide them with a copy. It must be the most recent and, to the best of our ability, it must be legible.

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If you require gratuity – it is taxed . . .

Jun 28, 2013

In June of 2012 the IRS clarified the difference between a tip and a service charge. Under the Federal Insurance Contributions Act (why insurance, I don’t know) the IRS determined that “automatic gratuities are service charges . . . .” They also decided that automatic gratuities (i.e., service charges) are taxable because they are not voluntary.

 

To address this issue many operators are simply stopping the “automatic gratuity” for large parties as these would come under the classification that the IRS has stated. We agree with that move and recommend you consider that move yourself. If there are no circumstances wherein the customer is “required” to provide a gratuity over and above the amount of the meal, you will always be safe from issues during an audit.

 

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Menu Labeling – It is Part of Obama Care

Jun 21, 2013

Currently in the State of CA we are required to label our menus with nutritional information. There are a number of caveats but the basic premise is clear – notify guests of what is in your food. The caveats include:

 

–          Covered facilities: must operate 19 or more food facilities under substantially the same name – or – a franchise outlet of a larger corporation with substantially the same menu and at least 19 other locations.

–          Calories must be displayed on the menu in the same size and type font as the price.

–          Display tags (such as in showcases) must also include caloric information

–          Drive-thru’s must provide a brochure listing caloric information at the point of sale

–          If a food item is offered for sale less than 180 days in a calendar year, you do not need to post the caloric information.

 

Under ObamaCare (PPACA) the nation will be going to a menu labeling plan – we just don’t know yet what that looks like. The Food & Drug Administration (FDA) has been tasked with the assignment to outline the posting requirements for all restaurant operators, grocery stores that serve food and manufacturers but they seem to be having trouble getting that done. The initial requirements were due in March of this year but as the FDA has stated “this is one of the most difficult and controversial programs that we have attempted to create.” No doubt part of the problem is the complexity of the restaurant business – with fast food, full service, salad bars, buffets, food trucks, etc, etc.

 

At issue for restaurateurs in California is what will change, if anything. We do not know if what the fed’s present will trump California’s current menu labeling system and the requirements for qualification. If the FDA decides that to be included under this requirement the ‘covered facility’ definition is only 5 restaurants – I anticipate the State of CA going that direction also.

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California’s Minimum Wage is Likely Going Up

Jun 10, 2013

In an aggressive state bill currently being considered by California legislators, employees in this state may be experiencing a substantial increase in compensation over the coming couple of years. On the table now is AB 10 which proposes an increase in the minimum wage of $.25 in 2014, an additional $.50 in 2015 and another $.50 in 2016 for a total of $9.25 an hour. By 2017 this bill proposes to index the minimum wage in CA from that point on. This unfortunately has passed the CA Senate this past week and the bill is now headed to the CA House of Representatives next week.

 

Originally considered unlikely to pass because of both the large increases in wages and the issue of indexing, there now appears enough support to make this pass. Recently the bill passed the Assembly Labor and Employment Committee which is where it was assumed this would stall.

 

Eighteen states have a minimum wage above the federal level of $7.25 an hour, led by Washington at $9.19 an hour and then Oregon at $8.95. Ten of those states provide for annual, inflation-adjusted increases. California’s wage ranks fifth-highest in the country.

 

The minimum wage in CA has not increased in six years so we are due and we understand that it is necessary to take a look at this. The Restaurant Association also understands that without action on the part of the state, individual communities will begin making their own rules – some communities in CA have already started. San Jose implemented a minimum wage of $10.00 per hour just last month while San Francisco did the same last year. The City of Sacramento is currently considering a similar proposal.  The problem is that this is potentially coming at the same time as the PPACA is being enacted. Doubling down on the costs to run your operations is dangerous but that doesn’t appear to resonate with the state officials.

 

Matt Sutton, Vice President of Government Affairs & Public Policy for the California Restaurant Association, said an increase in the minimum wage would benefit only its employees who earn tips as the added cost would force operators to hold down wages for hourly employees to absorb the mandated increases for those making minimum wage. We agree; these staged increases put pressure on the Heart of the House employees in that there is less to offer them after the increases for tipped employees are mandated. A majority of the Heart of the House employees in restaurants are currently paid at a rate higher than minimum. This minimum wage increase will likely keep them exactly at minimum given the upward pressure on costs that individual restaurants will face.

 

We are continuing our efforts to work with all legislatures from both sides of the aisle to come to an agreement on what makes the most fiscal sense – certainly this bill with indexing tagged on at the end does not.

 

Now would be the time to work through labor efficiencies, perhaps as you are also working through plans to implement the Patient Protection Affordable Care Act (Obama Care). No doubt smaller franchise locations and even medium size businesses will consider tight controls on the number of hours that employees who are deemed part-time will be working. Simultaneously in CA that may be necessary for a number of reasons, PPACA is only one of them.