Restaurant Planning for the $15 Minimum Wage

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        For most national restaurant chains, and fast food franchises in particular, employee wages are the single largest operating cost. Los Angeles recently enacted a $15 minimum wage and other jurisdictions including New York are considering raising their minimum wage. Restaurant operators confronting these large costs increases should consider working with their accountants, tax consultants, and other advisers to create a program to help offset these cost increases.  

SMAC Software Application

        Planning ideas include measures to both increase revenues and decrease costs. Ideas include using new powerful software technology applications commonly called SMAC:

  • S stands for utilizing social media for pinpoint advertising and for customer loyalty reward programs.
  • M represents utilizing mobile phone software for ordering, payments and for the social media activities describe above.
  • A corresponds to using analytics to measure  the S & M activities described above and for performance measurement and bench marking.
  • C means using the Cloud to access low cost software applications that effectuate the S, M, and A programs described above.  The Cloud is a powerful tool to lower overhead by accessing lower cost administrative programs including accounting and benefit programs.

Improving Core Operations

Techniques for improving operations include both simplified menus as well as using LEAN methodologies to eliminate waste and non-value added processes.

Optimize Facilities

The mantra in real estate is location, location, location. Many restaurants are relocating to higher traffic shopping malls and food courts. Restaurants should reduce facility energy related operating costs by installing energy efficient LED lighting and energy efficient HVAC, as it results in an energy cost reduction. Utility rebates and Section 179 EPAct tax incentives may be available to support these energy reducing initiatives.  It may be beneficial for restaurant owners to consider installing energy efficient kitchen equipment and automated food equipment. Utility rebates may be available for energy efficient equipment. Larger automation projects may be eligible for R&D tax credits.

The Federal R&D Tax Credit

Enacted in 1981, the Federal Research and Development (R&D) Tax Credit allows a credit of up to 13 percent of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

  • New or improved products, processes, or software
  • Technological in nature
  • Elimination of uncertainty
  • Process of experimentation

        Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses, and costs associated with developing a patent.  On December 19, 2014 President Obama signed the bill extending the R&D Tax Credit for the 2014 tax year. Proposed tax extender legislation would extend the tax credit through December 31, 2016.

Higher Wages

        With new hires, consider using the higher wage to attract individuals interested in a long term food service career.   The essence of business is to manage change and when your largest expense is poised to increase, it is this time for change.


        Restaurants across the country are facing operating cost increases.  Restaurants should work with tax advisers and accountants to plan around these cost increases and take advantage of the lucrative tax incentives available.

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Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.

Jennifer Reardon is a Project Coordinator with R&D Tax Savers.