OAK BROOK, IL - MAY 21: Fast food workers and activists demonstrate outside the McDonald's corporate campus on May 21, 2014 in Oak Brook, Illinois. The demonstrators were calling on McDonalds to pay a minimum wage of $15-per-hour and offer better working conditions for their employees. McDonald's is scheduled to hold its annual shareholders meeting tomorrow at the campus. (Photo by Scott Olson/Getty Images)

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As the Christmas shopping season accelerates the demand for higher wages continues. The two principal targets are McDonald’s and Walmart.

Millionaire owners paying what some consider substandard wages to their employees while laughing all the way to the bank.

How Much Does It Cost A Company To Hire Someone?

An employee is always going to add to the bottom line of any company.  Let’s look at the numbers.

In order for an employee to take home $44,000, their base pay would need to be $59,000 before taxes and benefits and the total cost to the company to hire that person would be $74,000 accounting for all taxes and benefits.

Could that be possible? It costs a company $30,000 ($74,000-$44,000) to hire an employee?  Yes, that’s how it works.

Why So Much?

In the first place the employee is not really making $59,000 are they? There are some things withheld from that paycheck. Taxes, Medicare, Social Security, Healthcare, etc. are all taken out to determine net pay. The end result is what the employee is left with — $44,000.

But that’s only $15,000 where’s the other $15,000? The other $15,000 is the company’s share of Social Security, Medicare, health insurance, taxes, etc. Yeah, they pay half the benefits or more in some cases.

The Higher The Cost The Less Paid Out

Some how I get the impression that if the federal minimum wage doubles in some states, and perhaps a third in some others, that it will just be business as usual.

Prices will rise but people will just happily shell out more for the same burger that was cheaper last week. Does that make sense on any level?

Look At The Numbers

Look at what an increase in minimum wage to $15 per hour will cost these companies:

  • McDonalds’ will see an $8 billion dollar increase for their 859,978 employees.
  • Burger King $1.8 billion increase for 191,815 employees
  • Wendy’s $1.59 billion increase for 168,672 employees
  • Yum Brands (Taco Bell, Pizza Hut, KFC) increase of $8.32 billion for 880,330 employees

Some Final Thoughts

The end result will simply be that the payroll costs for the current number of employees would be impossible to sustain with current pricing and customer purchases.
Company prices have to go up, or payroll expense go down (lay people off), or most likely some combination of the two. Due to rent and other expenses you will not find a McDonald’s “dollar menu” in an airport.

Price increases have shown that they do not increase customer traffic. People who like the business might pay more but they will traditionally do it as a reduced rate then they used to.

Be careful what you wish for. You just might get it.

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