Question:
In several articles, you discuss accounting for employee meals. It is not clear to us, however, how to price them (zero, food cost, menu price, etc?) and how to avoid showing that cost in net revenue, while at the same time being able to quantify how much benefit we provide to our employees at large.
We have been pricing them at menu price with a 100% discount, which then shows up as an expense. So, no effect on net ordinary income, but inflated net sales. The expense is already taken when we pay our vendors (COGS). If we price them at $0.00, we don't know the value we deliver to our staff. Can we construct a cost which is taken out of gross revenue?
– CEO; Arcata, Calif.
Answer:
First, kudos on providing employee meals as a benefit. It is so important for morale as well as performance. It is horrible to work a restaurant shift while hungry. Employee meals can also prevent unprofessional and unsafe practices like sneaking food and even eating uneaten food off guests’ plates, which I have seen plenty of times.
Nice job also on thinking through the accounting for meals. Too many restaurants just lump this into their cost of goods sold (COGS) and figure that it’s a small percentage of their food cost so won’t really matter. However, by not properly accounting for the benefit you are providing, you are hurting the chef, who will be evaluated based on food cost control, artificially minimizing a significant expense and making it hard to properly analyze your P&L.
Mary Sigel from Sigel and Associates Consulting Group says, “The owner in this case is correct about the inflation of gross revenue by ringing every item in and then comp'ing it off at 100%.” She gives a couple scenarios you can use, depending on how you administer employee meals. I prefer the first.
- “Some restaurants do an employee meal each evening and we come to agreement as to the cost per person and place the COGS in the P&L expense line for this meal on a weekly or monthly basis. The most we expense for a business with 15-18 employees is about $600/month. It can be a very convivial experience as it promotes teamwork between the BOH and FOH.”
- “Some restaurants prefer to ring in menu items for the staff meal allowance. Most restaurants will have a policy of 50% off of menu items up to a certain $ value such as $15 for a single shift and 100% for a double shift. It is very difficult in this case to get the BOH to follow this policy. We then ask them to write their meals on a clip board so that we can approximate the COGS on a weekly or monthly basis and input to an expense line on the P&L. It is a mixed system but does work for some restaurants.”
Once you are set up accounting-wise, Sigel emphasizes that you have to monitor the system to make sure all food items are being recorded, especially in the second scenario. Good accounting is a financial snapshot of your operation’s performance, and if the inputs aren’t right, the analysis won’t be either.
More on accounting for employee meals here.