Friday, December 13, 2013

Hayward's Sub Shop is Open for Business!! Now, I just have to see if I can make it with the various Minimum Wage hike scenarios. See the numbers here....

Hayward's Sub Shop is open for business!! However, am I going to make it at the various proposed minimum wage hikes?  Let's see.

Assume I have 4 part time workers earning \$7.25 per hour.  Each works 25 hours per week so I have 100 hours of labor time scheduled.

There are 4.3 weeks in a month.

Total Labor Hours in a month for my employees = 430.

I pay them \$7.25 per hour BUT they (at the minimum) cost me \$7.73 per hour because I have to pay the employer share of the workers Social Security and Medicare (6.65%).

My total Wage cost at the end of the month is \$3,324.00.

Assume a minimum wage of \$10.00 instead (\$10.67 with SS and Medicare taxes)
\$10.67 X 430 Labor Hours = \$4,588.00

A difference of \$1,264.00 in wage expense for me compared to the current minimum wage.

If the minimum wage were to go to \$15.00 per hour plus what I pay in Social Security and Medicare on behalf of the employee, then the total wage rate would be \$16.00.

\$16.00 X 430 Labor Hours = \$6,880.00

A difference of \$3,556 in wage expense for me compared to the current minimum wage.

Let’s say my daily average revenues are \$500.00 (100 sandwich combo meals at \$5.00 each—trying to compete with Subway!) and I am open 7 days a week.  My monthly revenues are \$15,000 (\$500.00 X 30 days).  Assume my rent, utilities, interest on the loan I took out to start the business, advertising, taxes and other expenses total \$3,000 per month. Assume the cost of the inputs (bread, meat and fixins’, chips, soft drink, cups, etc) to make each combo meal is \$1.50 (I am pretty sure this is LOW). I sell 100 combo meals per day or 3,000 per month.  Total cost of inputs to make the meals is \$4,500 (\$1.50 X 3,000).
My total monthly costs to stay open (not including labor) are \$7,500.

So my Net Revenues BEFORE labor costs are \$7,500.00 (\$15,000 Revenues minus \$7,500 costs)

1.       Under a Minimum Wage of \$7.25 my labor costs are \$3,324.00.  Subtract this from \$7,500 = \$4,176.00
Multiply this by 12 and I am earning \$50,170 per year from my little sandwich shop.

2.       Under a Minimum Wage of \$10.00 my labor costs are \$4,588.00.  Subtract this from \$7,500 = \$2,912.00
Multiply this by 12 and I am earning \$37,856 per year. That is a 25% DECREASE.

3.       Under a minimum Wage of \$15.00 my labor costs are \$6,880.00. Subtract this from \$7,500 = \$610.00
Multiply this by 12 and I am earning \$7,300.00 per year. That is an 85% DECREASE.

At what point do I have to consider my “Opportunity Cost” of staying in this business (how much can I earn doing something else)?

It is ok to pressure the Walmarts, McDonalds and Subways of the world to VOLUNTARILY  increase the pay of their workers.  But when you advocate an increase in the minimum wage for ALL workers, please remember the smallish business guy or gal.

Judge for yourself as to whether we can make it or not.

Oh, and could you help the 4 workers I had to let go find a job. Thanks!!  :

NOTE: Regarding my numbers.  I am sure my \$3,000 in expenses might be a little high BUT my estimate  for the cost of each combo meal is likely low. Also, Social Security and Medicare are not the only additional costs of hiring a worker. The wage rate is also underestimated.  So, it probably evens out or favors expenses on the low side.  In other words, the "profit" is overstated for the most part.

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