U.S. restaurant operators face increasing challenges in running a profitable business. Costs are increasing for food storage and food preparation, along with rising prices for meats and vegetables. On top of the steadily rising basic food costs are higher labor compensation levels for executives, managers and kitchen employees, coupled with a similar upward trend in benefits costs.
Having the right corporate compensation and employee benefits, along with being a profitable business, is a delicate balance that restaurant companies must manage. Getting a tight grip on costs while enhancing your employees’ compensation and benefits can lead to a winning formula.
Increased Labor Costs
The National Restaurant Association notes that restaurant operators will face a range of challenges this year, like increased labor costs and legislative battles around hourly wages that will possibly dampen the bottom line. Additionally, employee recruitment and retention will remain a top challenge for managers this year in this $800 billion industry. There is more competition to find and keep skilled restaurant workers as the U.S. economy improves and more jobs are available. Coupled together, this environment is forcing restaurants to look carefully at expenditures across their businesses.
Surveys for Industry
One of the ways that operators can learn more about their industry and assess the costs involved is through industry-wide surveys, like the annual Workforce Intelligence (formerly People Report) Corporate Compensation and Benefits Survey. This is the chance for every restaurant to step up to the grill (so to speak) and share the top line and bottom line expectations for the business and for the industry.
Restaurants are invited to participate in the survey every spring. Questions range from levels of salary, benefits and total compensation for all levels of employees, as well as how benefits stack up for each employee. This is a particularly detailed section of the report, as there are variables for all levels in areas of health insurance, sick pay, vacation days and other benefits options for longer term employees. All restaurants should take a look at this survey, in order to bring a fresh perspective to industry-wide insights.
Compensation is a hot-button point for business managers everywhere, and definitely in the restaurant industry. Internal challenges figure around determining payment for top culinary and service talent, as well as loyal kitchen and front of house staff. There are many ways to employ and pay front-of-house staffers, from full-timers to outside agencies. There are also talented chefs who can call the shots on pay and benefits. When restaurants talk about compensation, these are the sort of challenges they are faced with around the industry.
Compensation elements that top executives assess include base salaries, bonuses, pay ranges for hourly workers to top executives and more. This might include opportunities to own equity in a company and share in profits, according to the bonus plans in place.
Legal & Legislation Issues
One of the more challenging areas for restaurant owners is in the way of increased legislation around payment for workers. One example seen in Nation’s Restaurant News reported that in late 2016, the U.S. Department of Labor was trying to push through the Fair Labor Standards Act. The new law proposed a near doubling of salary levels for employees (from $23,000 to $47,000) to qualify for overtime pay.
This proposed ruling would dramatically impact the bankrolls of restaurants with mid-management employees. Representatives from 21 states banded together for a lawsuit arguing that the government was exercising the unconstitutional use of power over the new overtime regulations. However, this proposed law was blocked before it could take effect. Over time, this issue may come back to the front burner for compensation teams to review.
Minimum Wage Battles
Another hot topic in the legal area is minimum wage. Some states and cities are increasing their minimum wage pay amounts from the federal level of $7.25 per hour to higher amounts like $10 or even $15 per hour. Some foresee that, in account of already expensive cities, the new Trump administration will not move to increase the federal minimum wage amount, but rather leaves states and cities to determine a new hourly wage increase.
California has already moved to do this. Starting this year, California raised its minimum wage to $10.50 per hour, provided the business had 25 or more employees. Those businesses under that threshold could hold off paying the new hourly amount until 2018. The rate will rise to $15 per hour in 2022 for the larger companies, and 2023 for those smaller businesses.
But, as CNBC reported, state government and nonprofit groups are fighting back to oppose the increases, citing that it would provoke a wave of food and other service businesses closing. In expensive cities like San Francisco, many restaurant closures have closed due to the skyrocketing labor costs and costs of doing business.
There is an uneasy balance for restaurant operators to maintain. Many owners want to pay a fair wage to hard-working employees along with benefits, but at the same time, they have a very close eye on costs and how often the tills are ringing with food sales during a given month. In some tourist-focused cities such Phoenix and Scottsdale in the spring months, restaurants often make a lot of money, hoping it will offset the very slow, hot, dry summer months with little to no activity.
As noted above, benefits have also become increasingly complex for restaurant companies. There is industry confusion in the types of health coverage that is offered to full-time and part-time restaurant employees. Operators have to look at a range of plans to offer to their employees and stay abreast of the federal changes in overall healthcare. The survey noted above looks to fill the information gap with questions around monthly insurance costs in various PPO and HMO plans for employees. There are also questions around the costs to a business for medical office visits, prescription co-pays, wellness programs and much more.
Time to Pay Up
Like so many other industries today, the restaurant industry faces challenges across the spectrum. The industry has obstacles from business and legislative issues, to rising food costs, to the ultimate challenge of finding the right mix of talent that can make enterprises shine.
In the coming years, the restaurant industry may also be faced with more real estate issues. Slotting a chain restaurant inside a supersized shopping mall is slowly becoming a thing of the past. Brands may soon find greater opportunities with smaller stand-alone outlets in busy walkable areas.
Offering incentives to executives and workers in the restaurant industry may become more prominent. The talent that is well-compensated will likely be more loyal over time to restaurant owners everywhere.
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