How small pay increases can have a big impact

The pressures of labor shortages are hitting restaurant owners especially hard, and many are looking to increase wages to recruit and retain workers. Even little adjustments, though, can result in significant impacts to the bottom line.

Below is a good illustration of how increasing the pay of just five employees to $12 an hour can result in more than $14,000 a year in additional cost to the employer:

Current payroll

NAME HOURLY RATE HOURS WORKED GROSS WAGES PAYROLL TAXES (7.65%) WAGES & PAYROLL TAXES
Employee A   $8.00 21.57 $172.56 $13.20 $185.76
Employee B   $9.50 80.00 $760.00 $58.14 $818.14
Employee C   $9.25 6.02 $55.68 $4.26 $59.94
Employee D   $10.00 72.77 $727.70 $55.67 $783.37
Employee E   $9.00 17.92 $161.28 $12.34 $173.62
198.28 $1,877.22 $143.61 $2,020.83

 

Payroll after increasing all employees earning under $12 an hour to $12 an hour:

NAME INCREASED PAY RATE HOURS WORKED INCREASED WAGES PAYROLL TAXES (7.65%) NET INCREASE OF WAGES & PAYROLL TAXES
Employee A   $12.00 21.57 $258.84 $19.80 $92.88
Employee B   $12.00 80.00 $960.00 $73.44 $215.30
Employee C   $12.00 6.02 $72.24 $5.53 $17.83
Employee D   $12.00 72.77 $873.24 $66.80 $156.67
Employee E   $12.00 17.92 $215.04 $16.45 $57.87
198.28 $2,379.36 $182.02 $540.55

 

If you assume this employer has 26 pay periods a year, the $534 increase in wages and payroll taxes for these five employees each pay period will result in an overall increase of $14,054.40 in payroll costs.

Many considerations go into deciding whether to increase employee wages and by how much, and the higher payroll cost is just one of those. For example, adjusting starting pay may be key to remaining viable in a competitive marketplace.

Our financial accounting team is here and can walk you through the estimated impacts of increased labor costs to your business and bottom line.  We would be happy to consult on the best course of action for your business.

In the meantime, consider a few of these suggestions that can help restaurant owners maintain profitability.

  • Make sure employees do not clock in early or clock out late. They should only clock in once they are prepared to go begin work. Crew members should also clock out before they break to prepare and consume an on-site employee meal. Even a handful of employees clocking in a couple minutes early or clocking out few minutes late over time can result in thousands of dollars in excess payroll cost over a year’s time.
  • Keep turnover to a minimum.  Low turnover reduces your training hours paid as well as reduces your unemployment tax cost.
  • When having to call in additional crew members, look at the numbers of hours worked and try calling those employees who are not close to going into overtime first.  Additionally, consider calling the crew members with the lowest pay rates first.
  • Create specialized teams, such as opening and closing teams, to gain efficiencies.  Truck delivery teams could specialize in unloading the truck and placing product faster.
  • Find ways to increase service times to increase sales.
  • Train your employees to practice suggestive selling.
  • Challenge and fight all unemployment claims.  The unemployment tax rate is based on the number of claims each organization has.  The fewer claims, the lower the rate.
  • Offer bonuses or incentives to employees that offer time- or money-saving ideas.
  • Contact employees who voluntarily left a month or so afterwards, as some may be interested in returning.

Andrea Weaver is a Senior FAST Manager with our Financial Accounting Services Team. She can be reached at aweaver@antarescpas.com.

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