McDonald’s demands restaurants pay staff minimum wage, quits powerful group over tipping fight

McDonald’s called on restaurants to pay their wait staff a minimum wage — rather than relying on tips to make up the difference in salary.

The fast-food giant, which has seen its market share shrink in the face of stiff competition from full-service eateries that rely on tipped waiters, quit the powerful National Restaurant Association earlier this week.

“Right now, there’s an uneven playing field,” CEO Chris Kempczinski told CNBC, adding that “all classes of workers should be paid at or above the federal minimum wage.”

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At the center of the dispute is the tipped minimum wage — just $2.13 an hour under federal law — which allows full-service restaurants like Chili’s and IHOP to rely on gratuities to fill the gap to $7.25.

That advantage has helped them push cheap burger deals that cut into McDonald’s sales.

The Big Mac maker decided to exit the NRA over the issue while aligning itself with labor activists who have long blasted the system.

“The subminimum wage is indefensible,” said activist group One Fair Wage, which cheered Kempczinski’s remarks while calling them self-interested.

Chicago, McDonald’s hometown, is already phasing out the tipped wage.

California — which last year raised its minimum wage for fast food workers to $20 an hour — and a half-dozen other states have done the same. DC voted to kill it, then paused the rollout this year.

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Kempczinski also voiced support for the Trump administration’s push to exempt certain tips from federal taxes — though he stressed the move wouldn’t help McDonald’s employees, who don’t receive tips.

“If you are a restaurant that allows tips… you’re essentially getting the customer to pay for your labor,” he said.

The fight comes as Americans show signs of “tip fatigue.” Digital prompts at counter-service joints and coffee shops have sparked backlash, and tipping levels have started to fall, undercutting the math behind subminimum wages.

Behind the scenes, McDonald’s executives told Wall Street analysts this week they “doubled down” on the tipped-wage critique and cited it as a key reason for quitting the NRA.

For McDonald’s, the calculation is simple: if every restaurant has to pay at least the federal minimum, the burger giant no longer loses ground to casual chains shifting costs onto their customers’ gratuities.

McDonald’s same-store sales fell 3.6% in the first quarter of 2025, the chain’s steepest drop since the pandemic.

The decline reflects inflation, higher menu prices and a pullback by lower- and middle-income customers, while rivals like Chick-fil-A and Raising Cane’s expand aggressively.

Though McDonald’s still controls about 25% of the US fast-food market and remains the world’s largest chain, its competitive edge in America is eroding. Analysts warn that rising costs and intensifying competition could further chip away at its market position if trends continue.

Meanwhile, sit-down chains are enjoying somewhat of a renaissance.

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Texas Roadhouse, Chili’s, LongHorn Steakhouse and several Asian-themed chains such as Kura Sushi and Gen Korean BBQ have gained significant US market share over the past two years through expansion and double-digit sales growth.

Casual dining chains are outperforming many quick-service rivals, with about 60% reporting positive comparable sales in early 2025 versus 45% for fast-food brands.

Consumers are increasingly drawn to sit-down restaurants offering value-driven menus, experiential dining, and specialty cuisine, fueling the sector’s resurgence.

Kempczinski told CNBC that middle- and lower-income customers are “under a lot of pressure right now.” He called it “a two-tier economy,” one in which the wealthy keep spending and everyone else is forced to cut back.

For McDonald’s, the pain is already visible. Kempczinski admitted traffic from lower-income diners is down “double digits,” forcing the chain to roll out more value meals because, as he put it, “we needed to step in.”

Wall Street analysts see the fallout too. UBS warned restaurants are operating “in a difficult macro environment in which consumers are managing visits.” And Morning Consult’s John Leer flagged the bigger risk: financial stress could “trickle up,” eventually squeezing higher earners as well.

Companies are bracing for an economy where, as Leer said, “the well-off are the future of the consumer landscape.” But even that has limits — “there are only so many of these consumers out there.”

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“McDonald’s has chosen to step away from membership in the Association due to a policy difference,” an NRA spokesperson told The Post.

“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 rep for the trade group added that “our focus remains on serving all members through effective advocacy and engagement.”

The Post has sought comment from White House. A McDonald’s spokesperson referred The Post to Kempczinski’s remarks to CNBC.