4 Things Employees Need to Understand About Business

In the news recently, there have been reports of fast food workers demanding hire pay. I have nothing against fast food workers. They offer a valuable service. But to demand to be paid $15 an hour for flipping burgers is a bit much. There are a lot of factors that go into determining how much to pay employees, when to hire new employees, and when to downsize. Most employees, especially entry level employees are unaware of these factors. So here are some insights into the cost of doing business.

1. High Revenue does not equal High Profit - Revenue is how much money the company is bringing in. Revenue pays for expenses. Revenue minus expenses equals profit. So if a company has $1 million in revenue, but $900K in expenses, the profit is $100K. That's not a lot of profit. And depending on your industry, the profit could be more or less. The profit is then saved as a reserve, distributed for profit sharing among the employees, and/or used to expand the business. It depends on the needs of the business. But let's go back to expenses for a second. Expenses include but are not limited to taxes, debt payments, costs for supplies, maintenance, phone, lights, water, network services, marketing, manufacturing, assessments, mortgage, rent, etc. If expenses exceed revenue, there is no profit.

2. You are an Expense - If you are an employee, you are an expense called labor cost. Labor costs include wages, payroll taxes (employers pay 6.2% of your wages for Social Security and 1.45% of your wages for Medicare, that's on top of what is withheld from your wages already), unemployment taxes, disability taxes, bonuses, cost of training, healthcare, pension/401k contributions, etc. See how expensive you are?

3. Wages are Determined by Value - Employers pay based on the value you bring to the company. A high school kid working his first job at a fast food joint isn't going to be paid as much as a manager. The manager has to understand  the fundamentals of running the store including managing the payroll, making decisions on who to hire or fire, ordering supplies, etc. The high school kid just has to keep track of making it to work on time. The manager has to be able to work every job in the store if someone doesn't show up. Value is also determined on what the market can bear. If the skill set you have is in high supply, you aren't going to be paid as much because you have a lot of competition. If you have a skill set that is in high demand and low supply, you can be a little pickier on which job to choose.

4. The Minimum Wage is not Meant to be a Living Wage - The minimum wage is the minimum amount that employers are allowed to pay employees. It is entry level work meant for low or unskilled workers to get into the job market and gain work experience. If you're an unskilled worker with little to no experience, can you really expect to be paid as much as the manager? But once you gain the skills and experience, then you can expect to be paid a little more.

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