Minimum wage workers in 18 states received a pay hike at the start of 2018 leaving business owners concerned that a wage increase may negatively affect their bottom line.
“This is going to cause prices to go up. Minimum wage increase just eats away at the operator’s margins,” Fatburger CEO Andy Wiederhorn told FOX Business’ Stuart Varney.
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Fatburger, a franchise with 200 stores globally, is based in California, a state where the minimum wage will jump to $11 per hour from the current level of $10.50.
Wiederhorn said the only way to counter a minimum wage hike is to increase the price of goods and services.
“When you raise minimum wage by 50%, you are taking away the entire net margin that a restaurant operator makes, which is about 10-15 points out of 30% labor cost. So, you really have to raise prices to make it work,” he said.
Besides minimum wage hikes, the Republican Party’s sweeping tax reform bill that passed in late December is spurring companies to hand out bonuses and increase wages for workers.
“The tax reform act is going to give the operators, the franchisee, some extra money to spend and grow their business, but minimum wage is going to take it away and that’s going to mean prices are going to go up,” Wiederhorn said.