Restaurant Planning for the $15 Minimum Wage
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
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
- 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
improving operations include both simplified menus as well as
using LEAN methodologies to eliminate waste and non-value
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
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.
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