McDonald's criticizes US restaurant industry for uneven wage policies

Key Points

• McDonald's CEO Chris Kempczinski advocates for an end to tipped wages, stating it creates an uneven playing field between tip-dependent restaurants and those that pay a standard wage.
• Seven states require restaurants to pay a minimum wage before tips, which Kempczinski argues helps reduce poverty and employee turnover.
• McDonald's has exited the National Restaurant Association due to a policy disagreement regarding tipped wages and its impact on the industry.
• The company is trying to attract lower- and middle-income customers with its Extra Value Meals amidst rising fast food prices.

McDonald’s is criticizing the restaurant industry for allowing tipped wages, which let managers pay servers less than the minimum wage as long as customer tips make up the difference.

McDonald’s Chairman and CEO Chris Kempczinski said in an interview on CNBC Tuesday that he supports President Donald Trump’s efforts to eliminate federal taxes on tips. But since McDonald’s workers don't earn tips, the policy doesn’t help them.

Kempczinski also noted that in many states, sit-down restaurants are allowed to pay servers as little as $2.13 per hour, a federal minimum set in 1991, with tips making up the rest of their pay.

“So right now, there’s an uneven playing field. If you are a restaurant that allows tips or has tips as part of your equation, you’re essentially getting the customer to pay for your labor and you’re getting an extra benefit from no taxes on tips,” Kempczinski said.

Seven states – including California, Nevada and Minnesota – require restaurants to pay their servers a minimum wage before tips are added. Kempczinski said that policy helps lower poverty levels and employee turnover.

“We just need to do that, I think, across all 50 states. And we’ve said repeatedly, we’re open to conversations on raising the federal minimum wage,” Kempczinski said.

Kempczinski was promoting McDonald's new Extra Value Meals, which offer discounted prices for an entree, side and drink. Kempczinski said the company is trying to appeal to lower- and middle-income customers who have cut back on their visits as fast food prices have risen.

As the average price of a combo meal has crept above $10 across the U.S., McDonald's and other fast food chains are competing more directly with sit-down chains. Chili's, for example, currently offers an entree, drink and appetizer for $10.99.

But Kempczinski implied that sit-down restaurants can offer deals like that in part because many pay their servers a sub-minimum wage.

McDonald’s feels so strongly about the issue that it is no longer a member of the National Restaurant Association, an industry trade group that represents more than 500,000 restaurants and bars. The association confirmed Friday that McDonald’s has stepped away from the group “due to a policy difference.”

“The Association remains committed to representing the full spectrum of the restaurant industry and continues to advocate for policies that support sustainable growth and workforce development,” the association said.

McDonald's shares fell less than 1% Friday.