The formula
Extra cost per week = Employees x Hours per week x (New wage – Current wage) x (1 + Burden %)
The multiplication is the whole story. A raise is never the headline number, because the headline number is per hour and payroll is not. It is paid to every affected employee, on every hour, in all 52 weeks, with tax and benefit burden on top. That is how a modest $1 increase for two dozen staff becomes a five figure annual line, and why raises should be priced annually before they are agreed.
Share of sales = Extra weekly cost / Weekly sales x 100
Expressed that way, the increase can be compared with your margin and with a menu price rise of the same percentage, which is how most restaurants pay for it.
How to use it, with an example
- Count everyone the increase really touches, not just the people at the old minimum. A floor rise usually drags several rates above it up too.
- Enter the current and new average rates for that group.
- Use a typical week’s hours per person, averaged across busy and quiet weeks, and count on 52 weeks.
- Add your payroll burden from your payroll provider. If you do not know it, 12% is a reasonable placeholder for taxes and basic benefits.
- Enter weekly sales to see the increase as a share of sales and the price rise that offsets it.
Worked example: A restaurant lifts 24 hourly staff from an average of $15 to $16 an hour. They average 28 hours a week each, and the payroll burden is 12%. The extra wages are 24 x 28 x $1 = $672 a week, which loads to $752.64 with burden, $3,261.44 a month and $39,137.28 a year. On weekly sales of $38,000, that is 2.0% of sales, so a menu price rise of about 2%, with volume holding, would cover it. The calculator above is prefilled with these numbers.
Knowing this figure before a wage change lands is mostly a data problem: headcount, hours and rates scattered across rosters, time clocks and payroll runs. Odoo for Restaurants keeps employees, attendance and payroll cost in one place, with the Odoo HR module holding contracts and rates, so modelling a raise is a scenario you run in minutes rather than a spreadsheet you rebuild every January.
Common mistakes
- Pricing the raise as the hourly number. A $1 raise is not a $1 cost. Priced per year with burden, the same raise regularly lands between 50 and 100 times the number people picture in the meeting.
- Forgetting wage compression. When the floor rises, the cook who was $2 above it expects to stay ahead. If your headcount only includes staff at the old rate, you have undercounted, often by a third or more.
- Leaving out the burden. Taxes, unemployment insurance, workers comp and benefits scale with wages. A raise calculated on bare wages understates itself by your whole burden rate, commonly 10 to 15% before health coverage.
- Using your best week’s hours. Hours averaged over the year, including quiet months, give the honest figure. Budgeting on peak season hours overstates the cost.
- Assuming a price rise lands cleanly. Covering 2% on prices assumes your covers hold. In practice most restaurants split the answer: part price, part menu mix, part scheduling, the same juggling act described in restaurant POS system cost.
- Planning the raise but not the roster. The cheapest offset is usually hours, not people: tighter daypart matching removes low-productivity hours without touching service. Model the raise and the roster change together.
FAQs
How do I work out what a $1 raise really costs?
Multiply it out: employees affected, times weekly hours, times the increase, times 52 weeks, then add your burden percentage. For 24 staff at 28 hours a week, a $1 raise is $672 a week in wages, roughly $39,000 a year with a 12% burden.
What is wage compression, and why does it raise the cost?
Compression is what happens to the gaps between pay levels when the bottom rate rises. Staff who earned a premium for experience or skill expect the gap preserved, so a minimum wage rise pulls up several rates above it. Budget for the ripple, not just the floor.
What payroll burden percentage should I use?
Employer payroll taxes alone are 7.65% in the US, before state unemployment insurance, workers compensation and any benefits. Most restaurants land between 10 and 15% without health coverage, and higher with it. Your payroll provider can give you your exact loaded figure.
How much of a wage increase can menu prices cover?
Arithmetically, a price rise equal to the increase’s share of sales covers it, if volume holds: a raise costing 2% of sales needs roughly a 2% price rise. In practice, expect some guest pushback at higher percentages, which is why operators combine a smaller price rise with scheduling and menu mix changes.
Should salaried staff be included in the calculation?
Only if their pay actually changes. Salaried managers are not directly affected by an hourly floor rise, but compression pressure often reaches them within a year. Run the hourly team here, and treat any salary adjustments as a separate, deliberate decision.
When should I model a wage increase?
As soon as a change is announced, not when it lands. Minimum wage changes are usually published months ahead, and a January increase priced in October can be phased into menu prices gradually instead of arriving as one visible jump.
