Cheesecake Factory is facing a problem every company has to deal with when they raise wages

Cheesecake Factory has done well for its employees by raising their wages.

Many companies, especially those in some form of retail, have been prompted by the low unemployment rate and new state laws to review the salaries of their lowest-paid staff.

And because wages are rising, more people are working overtime. That leads to even bigger increases in labour costs for employers.

Cheesecake Factory on Thursday reported second-quarter earnings that showed a 10% year-on-year increase in total labour expenses, even as its total revenues and profits also increased.

The company had targeted 5% wage-rate inflation. It said the rises were in line with expectations, although there was an incremental impact from overtime.

Here’s what Cheesecake Factory President David Gordon said during the earnings call (transcript via Bloomberg):

“We did see more overtime than what we had been seeing, we’re — that’s certainly going to be a focus area for us as we look forward working on getting overtime down by better management of schedules or in and out times or just hiring, getting fully staffed faster so that will definitely be a focus for us in the second half of the year.”

Not long after, Gordon told analysts that the company is “going through that art and not a science of trying to balance our desire to continue to protect our margins, but also to grow guest traffic.”

Higher wages are great for workers. But if the company continues to spend a greater share of its revenues on wages, via more overtime or blanket hikes, it may have to pass on these higher costs to consumers via more expensive cheesecake.

And that’s the dilemma for many companies.

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