Labor issues in restaurant sectors are at the heart of restaurant owners’ concerns. 

Restaurant owners struggle to find the skilled labor and then train them and find the appropriate pay scheme for them that makes them stick around and retain them.

It’s way easier said than done especially with all the challenges that took over the sector. 

Restaurateurs cannot improve their operations without improving their employment issues.

 Improving operations isn’t an easy task and the top barriers to more efficient operations are the increasing labor cost and the labor shortage in recent years.

According to the Restaurant Report website, labor costs in the food and beverage industry account for 22 to 40 percent of total sales. 

The labor cost continues to rise with an average of 48% in recent years according to a survey performed on 295 restaurant operators. 

While the labor shortage is due to several reasons and the sector is struggling amid the pandemic and employees who try to find more secure and better work conditions.

Putting all this together and knowing how the expenses incurred on the whole employment process including salaries affect the profit margin, it is critical to strive to reduce labor costs. 

First, what is labor cost and how to calculate labor cost percentage?

Labor costs include all the amount of money you spend on your labor and they include salaries, wages, healthcare expenses, overtime pay, paid time off costs, benefits and payroll taxes. 

And the restaurant's labor cost percentage is the total amount of money you spend on labor costs given as a percentage of food sales.

Meaning that the labor cost percentage is the amount of money you spent on your employees for a certain period of time versus the sales you’ve generated over the same period of time.

Labor cost percentage = expenses paid on your employees / sales generated x 100

What is the labor cost percentage that you should aim for?

Ideally, the labor cost percentage shouldn’t surpass 30% of sales. 

Tips to reduce labor costs at your restaurant 

Reduce employee turnover rates

High employee turnover rates are usually attributed to the hospitality sector. 

Hiring new employees is usually costly because it involves different steps including hiring and training in addition to the time and possible sales operations wasted before the new staff becomes productive.

Provide a better understanding of human resources at your restaurant to your employees and provide better growth opportunities and regular performance appraisal to reward your employees accordingly.

Provide a healthy environment for your employees. Your staff spends most of their time within your restaurant so show some appreciation and offer them a safe workplace.

Check out this blog for more information on how to retain your employees.

Cross train your employees

Nothing is better than a multitasking employee. Employees who are trained to cover different roles are priceless. 

The waiter who can handle orders, serve guests, upsell customers and serve a duty as a bartender whenever the need arises or fill any other gap is a keeper.

So you should consider cross training your employees on different duties and departments so they fill any gap needed without having to hire additional employees. 

Employ part-time help for seasonal and temporary occupation

Part-time employees are usually hourly paid so they are less costly than regular employees. 

Seek part-time employee hiring during peak seasonal times instead of permanent ones to reduce the burden of full-time staff.

Certain days are surely busier than others so hire part timers on contractual basis for few months and you might offer them permanent opportunities if they prove to be invaluable to your business.

Adjust your salary scheme

A commission based salary can do wonders for your staff’s motivation and cost control.

Have both fixed and commission or performance based salary but always communicate any salary adjustment with your employees to avoid turnover.

Review your POS employee reports 

Check the reports concerning your employees schedules, overtime, attendance and absence.

Also review the sales reports generated by different waiters to determine your best performers.

These reports give you insights on each employee’s dedication and performance to reward them accordingly or to hold them accountable for any dereliction.

 You might find out that there are lots of overtime shifts so you may want to control and monitor the performance and duties fulfilled  during this overtime to keep things under control and try to see ways to reduce these shifts.

Labor costs go in correlation with profits and therefore the success of your business depends on controlling these costs.