Minimum wage increases add pressure to labor costs

With wages going up across the country, owner/operators must be sure to continue to place a priority on planning to try to offset the increased cost pressure as much as possible.

Approximately 40 percent of the states will have minimum wage increases in 2019. Some are going up just a few cents (e.g., Alaska increasing 5 cents, from $9.84 to $9.89) to some as much as $1 an hour, such as California, Massachusetts and Maine.

Depending on your jurisdiction and how many employees are at or near the minimum wage rate, the impact of these wage increases will vary.

As a point of illustration, consider a situation in which the minimum wage is increasing by $1 from $8 an hour to $9 an hour. Let’s say an employer has 10 employees, five of whom are paid $8 an hour and five who are paid $9 an hour. Once the new minimum wage is implemented, this employer gives all 10 employees a $1 an hour increase. He would see an estimated annual profit and loss impact of $67,600.

On the other hand, if this same employer moves only the five who are paid at $8 an hour to $9 an hour, but does not increase the pay of the other five, he could expect to see an annual increase of $33,800 in his labor costs since only 50 percent of his employees were affected by the minimum wage increase. 

We are here to advise you on the best ways to navigate through the pressures of any wage increases in your state. In the meantime, though, there are steps you can take.

  • Communicate any wage increases with your pricing adviser so that these can be taken into consideration when advising on menu prices.
  • Make sure your fixed and variable hour schedules are up to date.
  • Ensure that your guest count projections at each store are accurate and updated to maintain proper staffing levels.
  • Stress with your employees the importance of not clocking in early or not taking their full allotted breaks.
  • Keep crew turnover to a minimum.

Brad Rendall is the Director of Franchise Relations with Antares Group, Inc. He can be reached at brendall@antarescaps.com.