Higher-skilled employees increase full-service restaurant, bar payroll costs
Full-service restaurants and bars are seeing their payroll costs increase, while other restaurant sectors are seeing costs decrease.
According to commerce solution provider Square’s latest Quarterly Restaurant Report, since 2017, average hourly earnings for restaurant workers have grown 66% compared to 40% for retail workers as of April 2024. Payroll has increased for full-service restaurants and bars since 2019, while conversely, cafes and quick-service restaurants have seen payroll costs fall.
As of the latest quarter, payroll as a share of total revenues was 40% for full-service restaurants, 38% for bars, 38% for quick-service chains, and 42% for cafes.
“Bars and full-service restaurants rely more on higher-skilled employees who perform hard-to-automate tasks, which increases payroll costs,” said Ming-Tai Huh, head of restaurants at Square. “It’s the exact opposite situation for QSRs and cafes. These sellers can more easily use technology to automate and streamline operations, helping lower operating costs for front and back of house.”
Payroll costs vary by market, and local laws often factor into what workers earn. Last year, Chicago approved an ordinance to end the tip credit, raising the minimum wage for tipped workers from approximately $9 to $15.80 per hour for businesses with 21 or more workers.
The first increase will take place on July 1, 2024, happening every year until 2028 when the law goes into full effect. As of April 2024, Square found that 62% of restaurant workers in Chicago are already paid a base wage of $15.80 per hour. Square Payroll Index also shows that the median restaurant worker in Chicago currently makes $16.12 per hour before tips and overtime, or $21.70 including tips and overtime.
“Twenty two states have already raised their minimum wage this year, with several more scheduled in the coming months. In addition, a number of state and local governments are working on similar bills to phase out tip credit,” said Ara Kharazian, Square research lead and principal developer of Square Payroll Index. “In an industry where profit margins are already tight, restaurants can increase staff efficiency with technology. This helps free up their time to focus on the customer-facing aspects of the business versus manual, tedious tasks.”