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10 Restaurant Regulations That Affect Your Operations

Posted by Allie Tetreault on 8/19/16 8:00 AM in Industry News & Trends

14 minute read Print

restaurant regulations

What’s your biggest challenge as a restaurant?

When we asked last year in the Restaurant Success in 2018 Report, restaurateurs listed hiring and training restaurant staff as a top challenge.

However, 17% of restaurant operators also say laws, government, and regulation are a top challenge to success in 2018. 

It’s a hot button topic. What restaurant regulations affect how you operate? How can you advocate for the issues that matter to your small business or persuade policymakers to consider the restaurateurs’ point of view?

Restaurant laws may change your back of house, front of house, and back office procedures. At the very least, it’s important to stay updated on the issues that could affect your business -- in the long-term, short-term, or immediately. 

Here are ten government laws you should keep an eye out for this election year. Any opinions noted are based on the official stances issued by the National Restaurant Association. 

Read the latest restaurant industry updates in our newest Restaurant Success Report.

10 Restaurant Regulations in 2016

1) Health Care

The Affordable Care Act will have an interesting effect on the restaurant industry. The health care law requires employers with more than 50 full-time workers, including restaurants, to offer health benefits to full-time employees or face penalties of up to $2,000. Restaurants must also provide written notice to employees about new government-run health care marketplaces.

EFX-ACA-Hourly-Workforce-Infographic-WEB1.jpgVia Equifax

Some restaurants protested the change. Some companies cut workers’ hours to reduce the number of employees who would be eligible. However, many companies are finding that very few low-wage employees are actually willing to buy health insurance in the first place.

In Jacksonville, N.C., Billy Sewell of Golden Corral restaurants offered health insurance to his 600 employees, and found that only two people signed up.

“It’s either buy insurance or put food in the house,” said server Clarissa Morris in a New York Times interview.

The Affordable Care Act allows states to determine how the laws should be implemented, so the exact specifications of how to comply may vary. Check your state’s restaurant association website for more detail.


2) Data Security

Keeping credit card data secure is a main concern for restaurants, especially with the news of the breaches at Wendy's, Cici's, and Noodles & Company. We actually covered the topic recently on the Toast blog. At the moment, there are 47 state laws surrounding data security, but not a single federal law. Congress is intent on addressing this problem. 

When thinking about data security, restaurateurs often think of EMV and the recent liability shift. However, while EMV is an authentication technology, EMV cards will not protect your restaurants intrinsically from credit card hacks. It addresses the problem of fraudulent credit card use -- a problem not faced by restaurants since restaurant products have little resale value -- but not database hacks.

Instead, it’s important to understand PCI compliance and make sure your point of sale system and credit card system are safe and secure with end-to-end encryption and tokenization throughout the transaction.


3) Dietary Guidelines

The U.S. Department of Agriculture and Health and Human Services updates the Dietary Guidelines for Americans every five years based on the latest nutrition research. The hope is that these guidelines will help people understand healthy eating patterns, but also help restaurants, grocery stores, and other food companies understand what healthy items to sell.

restaurant dietsVia CSIPNET

Restaurants have consistently modified ingredients, re-engineered menus, adapted portion sizes, and increased the number of healthy options over the years with these dietary guidelines in mind. The 2015 guidelines recommend a restriction of sodium, added sugars, saturated fats and trans fats, and a healthy eating pattern of vegetables, fruits, grains, protein, and oils.

Speaking of trans fat, in 2015 the Food and Drug Administration announced that it is removing partially hydrogenated oils, the main source of trans fat in food, from its “Generally Recognized as Safe” list. Starting in July 2018, restaurants will no longer be permitted to sell items with trans fat, which has been linked to health disease.


4) Menu Labeling

With these dietary guidelines in mind, let’s talk about menu labeling. In 2010, The Food and Drug Administration announced a new federal menu-labeling standard that requires chains with 20 or more locations operating under the same brand name to label the calorie and nutrition information on menus for guests to read before ordering.

In March 2016, the administration announced a delay in the enforcement date, so enterprise restaurants have more time to design new menu boards, update their point of sale data, and research nutrition information. However, some companies such as Starbucks, Panera Bread, and Chipotle have already moved forward with displaying calorie information openly to customers.

Three out of four Americans say they are more likely to choose a restaurant that offers healthy menu options. The menu labeling law could afford guests the option to make healthy eating choices. However, expect menu labeling to hit your budget hard: the FDA estimates that it could cost up to $1,800 per limited service restaurant and less than $1,000 for a full-service concept.


5) Food Waste

Food waste is a giant problem in the U.S., and not just among restaurants. The U.S. Department of Agriculture estimates that 30-40% of our food supply in the United States is wasted. In 2010 alone, an estimated 133 billion pounds of food from stores, restaurants, and homes was wasted.

food waste infographicVia

This food ends up in landfills, negatively affecting the environment, and can also can hurt a restaurant’s bottom line, especially with inventory costs as they are. The Food Waste Reduction Alliance aims to define opportunities to reduce food waste, increase donations of food, and recycle unavoidable food waste in a more constructive way.

Congress has since encouraged food donation by permanently extending the tax deduction for small organizations donating food, but there is still more work to be done.


6) Joint-Employer Status

In August 2015, The National Labor Relations Board started shifting the joint-employer status so franchisors may be held liable for employment actions by their franchisees. This ruling has direct implications for restaurant franchisors, who may now need to take a hands-on approach in hiring, firing, and promoting employees.

McDonald’s was at the center of this debate after a nationwide strike where employees demanded a $15 per hour minmum wage in 2014. About 90% of McDonald’s restaurants are run by franchisees, independent operators who set their own wages, hiring, and firing policies while adhering to brand standards. According to the National Restaurant Association, the joint-employer status will redefine small franchisees as “big business” and impede entrepreneurship.

The changes envisioned would be detrimental not only to the franchise model, but to the economy as a whole. With increased challenges to the franchise model, there will be fewer jobs created, less capital invested into the economy, fewer taxes paid and less upstream and downstream economic activity.”

It’s important for franchisors to evaluate their franchisees and workforce-related practices to limit potential liabilities, such as employment-related lawsuits. For now, however, franchisors must wait for the NLRB to issue their final say on this issue. 


7) Overtime

The U.S. Department of Labor’s new overtime laws increase the overtime threshold limit from $23,660 to $47,550. That means that any salaried employee that falls under the new threshold will be entitled to time-and-a-half pay if required to work beyond the 40-hour work week. The law goes into effect December 1, 2016, and the threshold will be raised ever three years beginning on January 1, 2020.

In response to the new overtime rule, employers can:

overtime-rule-explanation.jpgVia Department of Labor

The new overtime rules are stirring quite the reaction in the restaurant industry. More than 80% of restaurant owners and 97% of restaurant managers start their careers in non-managerial positions and move up with performance-based incentives. These regulations could mean that these salaried employees could be subject to becoming hourly employees again. Increasing salaries, on the other hand, might not be feasible for independent restaurants with small profit margins.


8) Patent abuse

Patent assertion entities, also known as PAEs or “patent trolls,” can target restaurants, especially big brands. Patent trolls are companies that purchase vaguely worded patents at low prices and start lawsuits accusing businesses of infringing on those patents. Their profits come from licensing fees or settlements they demand for technologies pursued, such as wifi or online restaurant locators.

Patent trolls threatened more than 100,000 businesses with lawsuits in 2013 and cost businesses more than $29 billion. Some restaurants reported that patent troll claims consume 20% or more of their legal budget. According to Boston University research, most patent trolls target small or medium-sized companies that can least afford the steep cost of defending a law suit.

The National Restaurant Association supports the PATENT Act and the Innovation Act, which would implement a number of steps to circumvent or at least curb patent-troll lawsuits. Some steps might be: requiring those who send letters to be more specific regarding their interest and allowing defendants to regain legal fees from plaintiffs.


9)  Restaurant Tax Laws

In December 2015, Congress passed a series of tax changes that affect restaurants, including the 15-year tax depreciation schedule for restaurant improvements / new construction, the Work Opportunity Tax Credit, an enhanced tax deduction for food inventory donated to charity, and deductions of up to $500,00 in purchases of qualifying equipment.

1-67580-2015Issues-896229-edited.jpgVia NFIB

In addition, U.S. lawmakers have been discussing a comprehensive rewrite of the federal tax code, which could affect restaurants heavily. Many restaurant owners and investors pay individual tax rates, not business tax rates, so federal tax reform should take into account both individual and business taxes.


10) Work Opportunity Tax Credit New Call-to-action

The Work Opportunity Tax Credit is a federal tax incentive that encourages restaurants to recruit, hire, and train demographic groups of people who have historically faced opposition and barriers to employment. The WOTC assists veterans, food-stamp recipients, vocational-rehabilition referrals, and others, and has a proven track record of success.

Plus, the WOTC can be worth a tax credit of up to $9,600 per eligible employee, and restaurants can continue to claim credit for eligible employees hired through Dec. 31, 2019. The WOTC has helped more than 6 million people find jobs in the two decades since it was established.

The program is not, however, a permanent part of the reformed tax code yet. With the WOTC in the tax code, even more people might be able to find jobs. 


Your Next Steps

As small businesses, the restaurant industry will always be affected by government laws and regulations. In 2016, restaurateurs are listing it as their #1 challenge. Hopefully, this article has helped you learn more about the regulations that could affect your restaurant - and where you can go to learn more.

Fired up? Write to your congressman. Write to your state restaurant association. Join Restaurants Decide, the advocacy branch of the National Restaurant Association.

Want more industry insights?

Form – 2018 Success Report (Blog)

toast restaurant management blog

Written by: Allie Tetreault

Allie Tetreault is the Content Strategist for Toast. When she's not managing the Toast Restaurant Management blog and creating valuable resources for restaurateurs, she's belting in an a cappella group and toiling over new recipes in the kitchen. Her favorite foods are sushi and pasta -- but not together!

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