Regardless of the type of retail store you operate, you must pay your employees through payroll. According to Pat Fitzpatrick, owner of Atlanta Retail Consulting Inc., payroll is the single largest operating expense in retailing. To help keep your business in sound financial shape, you must set a realistic budget for your payroll expenses.


If you can limit your payroll expenses to 30 percent of your store's gross income, you should be in good financial standing. While this percentage is workable for retailers, it is normal for businesses in the service industry to spend more than 30 percent on payroll. Retailers generally have lower payroll costs because they spend more on goods than on labor. In the service industry, more money is spent on labor than on goods.

Salary Increase Statistics

According to a 2012 article by the Society for Human Resource Management, in 2013, employees can look forward to increases of 3 percent in their base salary. This is a net gain of 0.8 percent from 2012. The 3 percent increase holds true for most industries, except luxury retail sectors, such as boutiques and upscale jewelry companies and gas and oil sectors. These industries respectively reported median increases of 3.5 percent and 3.3 percent in base salary. The salary increases likely stem from the slow, steady growth in the economy. Luxury retailers and other companies with salary increases above the general industry average are usually more confident and optimistic about their business performance.

Employee Compensation

When budgeting for payroll, consider all the costs associated with employee compensation, including wages, salaries, bonuses, commissions and severance and overtime pay. Include paid benefit days, such as vacation, personal, sick and bereavement days and holidays. Factor in business expense reimbursements, uniforms, training and seminar costs, employer-sponsored vehicles, cell phones, meals, snacks and tools and equipment. Add voluntary benefits that you provide, such as 401(k) match and health insurance, and your mandatory payroll costs, such as workers' compensation, state disability insurance and payroll taxes.

Goods Versus Labor

As a retailer, merchandise is the key to generating revenue; therefore, it makes sense to keep your payroll costs at a minimum. However, low payroll costs should not come at the expense of quality labor, which could improve your profit margin rather than deplete it. For example, your sales may suffer if you fail to properly promote your goods, lack sufficient staff to cover your store and never offer your employees any incentives such as bonuses or pay raises.

Cutting Costs

If you find yourself exceeding your budgeted payroll percentage, figure ways to reduce your payroll costs. Try to do this without upsetting your employees so they start seeking employment elsewhere. For example, you can eliminate overtime, give your employees small gifts instead of larger cash bonuses and reduce merit increase percentages.