How to Control Labor Costs
Operating a restaurant involves many expenses. Essentially, you incur labor costs when you have employees working for you. Labor is an operational expense in just about any restaurant, predominantly including hourly wages for staff members.
Labor costs are typically understood as a percentage of sales. To figure your labor cost, use this equation:
Many restaurants hope to run a labor percentage below approximately 20 percent. When the costs begin to climb, anxiety levels rise as well. Still, simply paying your employees less will not solve labor cost issues. The keys to controlling labor costs are improving workplace productivity and scheduling your employees wisely.
Increasing productivity improves your overall operation by building employee skills and confidence. Take time to provide your staff with sufficient training and communication.
Cross-Train Your Staff
Cross-training is beneficial to both the employee and the business, since the worker will have a wider range of skills and be able to help in multiple areas of the restaurant. This allows the manager to schedule fewer workers while still being able to achieve the same production and service standards. Some suggestions for cross-training include:
- Train your prep cook to handle the grill
- Train your hostesses to work as back-up servers
- Train bussers to help run food to customers
Conduct Frequent Staff Audits and Reviews
Another great way to help improve productivity is to perform regular audits. Take the time to watch and assess your employees’ performances. If you find that a large portion of your employees’ work days includes inordinately long breaks or downtime, it might be wise to revise your schedule. Conducting face-to-face reviews with each member of the staff will help communicate your thoughts and concerns.
Make sure you have constructed a budget to help keep track of your annual sales and expenses like labor. Through your budget, allow a percentage of your sales to cover labor expenses. Then, create a staffing schedule to reflect your budgeted allowance for labor expenses. The following tips elaborate these guidelines:
Break down your annual budget. Break down your annual budget into monthly budgets to help divide the money into weekly sections. This will give you a weekly budget, from which you can determine labor costs and make an appropriate staffing schedule.
Design a new weekly schedule for all employees. Relying on a fixed schedule week after week fails to acknowledge shifts in projected sales, changes in the weather or other factors that can affect your business. Adjust the number of staff scheduled each week to keep compliant with weekly budget constraints.
» Learn More About How to Develop a Restaurant Employee Handbook
Monitor clock in/clock out times. After every shift, make sure that all employees have punched in and punched out exactly according to the schedule. Managers can usually use tools within the Point of Sale (POS) system to monitor and alter this information when necessary.
Discuss all schedule change requests in advance. Switching shifts can create problems when people start to work overtime, working more hours than the budget allows and potentially breaking a law, if the workers are youths. Be sure a manager is constantly aware of any proposed changes in the schedule.
It is often tempting to schedule more people than necessary in order to ensure that the business runs without any kinks. The reality is, however, that there will always be a few kinks in the restaurant business. Scheduling too many employees will increase your labor costs and reduce your overall profit, hurting your business overall. If you find that you have over-scheduled, you can send staff members home early. Train your people to work quickly, accurately and efficiently while also treating guests with respect and care. This allows you to operate at a high standard while still hitting your target labor percentage.
See below for a useful worksheet recording employee labor hours, pay rates and total labor hours per shift.
Download a sample Hourly Employee Labor Cost Worksheet (pdf)
More from Restaurant Management and Operations...
- An Overview of Different Restaurant Types
- How to Determine What Staff You Need
- How to Develop a Restaurant Employee Handbook
- Managing Operational Risks
- How Not to Fail at Running a Restaurant
- The Importance of the Point of Sale (POS) System
- Why Going Green is Good for Business
- Running Successful Take-out and Delivery Services
- Fundamental Upselling Strategies for the Restaurant
- Breaking the Language Barrier: Training and Managing a Multilingual Restaurant Staff
Back to Restaurant Management and Operations