restaurant labor costs
by Laura-Andreea Voicu

The fast-food restaurant industry has become the third largest employer in the United States. Efficient management of restaurant labor costs requires a thorough knowledge of the different components that comprise your restaurant operation.

Restaurant owners and managers should have their labor costs under control by maintaining their accuracy and utilizing the proper tools to keep track of expenses.

Make sure employees have a clear understanding of their roles and responsibilities. Establishing a transparent system for communicating this information is crucial to avoid confusion and inefficiencies in operations.

The Importance of Restaurant Labor Cost Efficiency

There have been several changes in the restaurant service landscape in recent years, bringing labor cost changes. These vary from societal, cultural, and political norms, including:

Sudden rise in online food ordering and delivery

This convenient service is somewhat of a double-edged sword for restaurants. Small, family-owned restaurants can enable delivery and pickup to promote their brand and level the playing field. However, this results in more intense competition between restaurants and a potential increase in labor costs if you need to hire more people to keep up with demand.

Luckily, you can mitigate online ordering costs by installing a free and simple-to-use online ordering system and appointing one employee in charge of accepting orders.

Free Online Ordering System for Restaurants Keep labor costs low and start taking orders without increasing staff

Recent laws on minimum wage increases in the U.S.

The Executive Order issued by President Biden setting the minimum wage at $15 for all Federal Contractors will also impact the restaurant service industry.

The previous minimum wage Executive Order still allowed tipped workers to be paid a sub-minimum wage. However, this recent Executive Order will eventually force employers to pay the same salaries they pay non-tipped workers by 2024. With this development, labor costs will need to be more efficient.

People’s views on working remotely

More and more people work from home now. The pandemic made it acceptable, while government subsidies also made it sustainable.

During the pandemic, the service industry was arguably the worst hit out of all business sectors. Labor shortage for said industry only made things worse during that period. Employers in these sectors had to pay people more, so efficiency in labor costs is a clear priority.

There’s also the issue of enticing people to accept shifts during the more antisocial hours of the day, which is where offering shift differentials can make a big difference in the uptake of available roles. It can even tie into the post-pandemic demand for flexible working opportunities if pitched correctly.

How to Determine Restaurant Labor Cost Percentage

Knowing how much of your total operating cost goes to labor costs is essential. This is very easy to calculate.

All you need to do is divide your labor cost by your total operating costs. Then, multiply that by 100 to get the percentage value.

(Labor Cost / Total Operating Cost = Result x 100 (to get % value) = Labor Cost Percentage)

Here’s an example:

$10,000 / 25,000 = 0.4 x 100 = 40% Labor Cost Percentage

Labor cost percentages also vary depending on your restaurant’s category, whether it is fast food, casual, fine dining, or table service-only.

Naturally, labor costs will be higher for categories where hiring more talented and qualified people is necessary. Acceptable labor cost percentages for profitability are as follows:

  • 25% for fast food restaurants
  • 25-30% for casual dining
  • 30-40% for table service or fine dining

In fine dining, for example, personnel must be pretty knowledgeable about the menu’s specific details and nuances – they also must purport themselves a certain way.

Simply being pleasant and eager to serve would not be enough in such establishments, which require a higher level of talent and experience. The figures above aren’t cast in stone but are approximations you can guide yourself after.

Here are some quick and simple tips on how to manage restaurant labor costs. They can also be used as management strategies to help restaurants run more efficiently and profitably.

5 Tips on Efficient Management of Restaurant Labor Costs

1. Establish a Clear Workflow

  • Group each employee according to rank for more efficiency and a clear delineation of duties. Using a Top-Down approach makes for smoother operational flows. Avoid overlapping tasks (although very tempting) since this will only disrupt the chain and create confusion and resentment among your employees.
  • Rank each task according to value. Some tasks are inherently more valuable than others. Focus on key, almost irreplaceable positions where you can put fail safes in place. Ensure that nobody is the only point of failure in running your restaurant.

2. Use Technology or Automation

Technology is the biggest game-changer in the restaurant business right now. Automating specific tasks and removing humans from the process has dramatically impacted how restaurants operate. This also has ramifications at the staff level:

  • Order-taking – using an in-house online ordering system connected to a printer instead of handwritten notes for orders makes instructions clearer. It keeps servers focused on their tasks instead of trying to understand people’s handwriting.
  • Point-of-Sale Systems – makes bookkeeping, sales, and instructions for the service staff more accurate and specific.
  • Productivity software and spreadsheets – can help you make precise, data-driven decisions that are unmatched. Measuring KPIs (Key Performance Indicators) is made more accessible by restaurant analytics software, allowing you to set goals and targets based on accurate data.

3. Reschedule Staff Regularly

Always check for changes in your restaurant’s workflow to avoid being overstaffed or understaffed on certain days of the week.

This is another reason why restaurant scheduling automation ties in with attrition and efficiency. An inefficient restaurant operation leads to higher attrition rates or high labor costs.

Overstaffing will lead to needless higher expenses and sometimes less productivity. Understaffing will cause people to be overworked and worsen employee retention rates. Customer satisfaction will drop when orders take too long because you are short-staffed.

4. Minimize Employee Attrition Rates

Pay isn’t the only major reason why employees leave a job. Career advancement, respect, and work flexibility are also vital for them. You can achieve them by having a well-trained staff that works in an efficient working environment.

Training restaurant staff well and having them work as a cohesive unit helps a lot:

  1. Boosts morale and keeps employers motivated to learn more.
  2. Keeps employees confident in their roles in the company’s success.
  3. Cross-training specific employees can help alleviate workflow in peak periods.
  4. Employees feel they can advance their careers when they acquire new skills.
  5. When working as a team, the execution of tasks is less like work and more like a game.

The role of ethical leadership in maintaining restaurant staff satisfaction is evident. Leaders who demonstrate fairness, trust, and respect are more likely to maintain a cohesive and productive team.

5. Boost Productivity

As you will learn, productivity is tied to almost everything we mentioned in this article. There is no one magic bullet to make restaurant labor costs more efficient. But to simplify, here are three fundamental points to focus on.

  • Training. A well-trained staff will stay longer, work better, and ultimately increase customer satisfaction.
  • Restaurant design. When your establishment is designed properly and everything is in its proper places, work becomes less cumbersome, and errors are minimized.
  • Equipment. Using adequate equipment for tasks is vital to any operation, including the restaurant business. It also gives your employees confidence in what they’re serving to customers.

Final Note

Running a restaurant is no easy task. In most cases, you will devote most of your waking time to planning, thinking, and executing every minute detail.

Price changes for certain raw materials for your menu and protecting profitability can be endlessly frustrating. This is why keeping restaurant labor costs down is a must and deserves your utmost attention.

photo of GloriaFood blog writer Laura-Andreea Voicu
Laura-Andreea Voicu

Laura-Andreea Voicu is an experienced content writer with a knack for marketing and SEO. She delivers business-optimized content to help restaurants boost sales and grow their brand.

She wrote for Search Engine Journal, Clutch, Sender, Venngage, Quickbooks, and many more.