Payroll Cost & Benefits
The last component of prime costs is payroll. Payroll is mostly a fixed cost because the restaurant has a certain number of people working a night no matter how busy it is. Knowing what the industry wage is per position will help an operator know what he or she should be paying. The following are some helpful suggestions to help control payroll:
- Ask yourself, are sales high enough? (Remember you must have a minimal number of staff working, regardless of how full the seats are).
- Look at wages per category. Are the current salaries in line with industry wages?
- Keep overtime to a minimum. Consider hiring people based on a forty-five to fifty hour work week.
- Is the meal credit being charged?
- Set up incentive-based pay for key employees.
Additionally, in some states, restaurants can charge employees a nominal amount for staff meals regardless if the employees eat. In each state, the charge can vary. In San Francisco, the meal credit for breakfast, lunch and dinner is $1.66, $2.25 and $3.50 per employee respectively. In Boston, the meal credit for breakfast is $1.00 and $1.75 for both lunch and dinner. In New York, the meal credit is $1.45 per shift. A restaurant with one hundred employees, open seven days a week, would save as much as $50,000 annually (100 employees x $1.45 x 7 days x 50 weeks). Staff meals can be deducted and pre-taxed so the restaurant saves the FICA (7.65%). In the above example, the FICA is another $3,800. Finally, the meal credit is subject to sales tax. It cannot be deducted from the payroll, so it will have to be paid when the sales tax return is filed.
Setting up incentive pay is another useful tool for motivating staff and controlling payroll. If someone is making a top salary and sales are declining, a raise is not necessarily the answer. Rather then risk losing the employee, set up an incentive plan. Look at areas where the restaurant is suffering and link that individual's pay to improving the performance in that area. For a chef, tie the bonus to areas like food cost, kitchen labor, total food sales, reviews and guide book ratings. A similar program can be set up for the general manager. An operator can link the general manager's pay to covers, average check, total labor and service reviews.
While there seems to be a lot to focus on the financial end, prime costs leave the most room for improvements. Other areas such as controllable, general and administrative, and occupancy costs are basically fixed costs and limited flexibility exists within these areas to save money. Think about it, how much can one honestly save by reducing the cost of linen as compared to prime costs? Not much.
ADL Hospitality Group produces an annual survey that highlights prime costs by restaurant type as well as wages by position. This survey can become a valuable management tool for evaluating your restaurant's potential success.