No more Sunday brunch? 40% of restaurants to close doors if minimum wage is increased

Restaurant and catering businesses are at breaking point financially; with many set to close their doors should the minimum wage increase by more than 5%.

Sunday morning brunches will become a thing of the past, as a survey by the Restaurant and Catering Association of Australia found even a modest minimum wage rise will cause many restaurants to reduce trading hours.

The association is calling on the Fair Work Commission to freeze minimum wages, as a survey of 400 association members found the sector would be adversely affected.

If the FWC increases the minimum wage by 5%, 40.3% of respondents said they would no longer be able to operate and the business would close, while a further 29.5% said they would reduce the hours of staff.

If the minimum wage rose by just 2%, 46.9% of business would be forced to reduce the hours of their staff and 10.8% would reduce their trading hours.

Restaurant and Catering Association chief executive John Hart told SmartCompany these results show the impact of the additional cost on business.

“Comparing the figures between a 2% rise and a 5% rise demonstrates that the additional costs will cause closures,” he says.

“The FWC needs to think about the size of the increase and the impact it will have.”

 In the past 12 months the amount businesses are spending on operating costs has also increased.

On average, food and beverage costs have risen by 4%, rates and taxes have jumped 2.68%, commercial rent has increased by 2.96% and insurance products have gone up by 1.01%.

Hart says the FWC should consider the fact restaurant and catering businesses are already losing money.

“If there’s a further impost it’s not worth them staying open. We’ve seen over the years more and more businesses closing and now we’re at a net closure rate we’ve never seen before,” he says.

“Also, for us, every increase is magnified through penalty rates. The average penalty rate is about a third on top of normal rates, so we’re paying a third more than some other industries.”

The Restaurant and Catering Association’s submission to the annual wage review asks the FWC to refrain from applying a one-size-fits-all approach to all industries.

It also asks the commission to consider structural changes in the economy and review modern awards on a case-by-case basis, as well as recognise the payroll of businesses will also be increasing by 0.25% because of the superannuation guarantee contributions rising to 9.5% come July 2014.

Hart says whether or not there is a minimum wage increase is “in the lap of the gods”.

“The last increase was to some extent reduced by economic conditions. We hope there’s an understanding that things are worse now and that this throttles any possible increase,” he says.

“The commission needs to make sure there isn’t a further biasing of the economy toward businesses in the non-service sector and businesses in capital cities.”

Hart says it’s likely businesses in regional areas will be the worst affected.

“Those labour markets are already really brittle, they’re thin markets. These increases place more pressure on regional businesses and if they’re not viable now, just imagine the impact of a rise in the minimum wage.”