How to reduce Payroll costs for a restaurants
Of the five high restaurant costs – equipment, supplies, food, and the POS system — the cost of restaurant staff is one of the most important. Labor costs are not just one of your significant food costs, but they are also part of your main expenses – a key performance indicator that helps determine your income.
But while labor costs are essential, self-management can be a significant challenge. Labor costs are constantly changing, often overlooked, due to rising wages. Indeed, Ontario restaurant owner Steven Mastoras estimates that by 2020 “labor-related costs, labor taxes, and employer contributions will increase by almost $ 60,000.” That is a staggering number that paints a grim picture.
Happily, not all disasters and darkness are. This post will help you manage the cost of restaurant staff by showing you:
- The fact is that the cost of the work includes.
- How to calculate the percentage of personnel costs (and why you should follow up)
8 Ways to Manage Employee Costs to Stay Profit
Some strategies you can use today to win faster.
Are we ready? Let’s go in.
What is Restaurant Labor Cost?
Labor cost includes all labor-related categories:
- Employees wages and salaries
- Health care
- Vacation and sick days
- Payroll taxes
How Do You Calculate Restaurant Labor Cost?
Calculating your total labor costs, then, involves having the sum cost for each of the above cost groups. For instance:
- Salaries and wages: $140,000+
- Overtime: $26,000+
- Payroll: $22,000+
- Health care: $26,000+
- Vacation and sick days: $9,000+
- Bonuses: $12,000+
- Total labor cost = 222,000
In isolation, the number below does not mean much. However, when calculated as a percentage, it is beneficial.
How Do You Calculate Labor Cost Percentage?
Percentage of labor costs helps you understand how much money you spend on work to generate income. You can count it in several ways:
Personnel costs as a percentage of total sales: Total Personnel Expenses / Sales Total
Personnel costs as a percentage of operating expenses: Total Personnel Expenses / Total Operating Expenses
Below are steps (with examples) to calculate labor costs as a percentage of total sales. To calculate labor costs as a percentage of operating expenses, apply instead of selling on operating expenses. Your operating expenses will cover all of your monthly operating expenses such as utilities, rent, and food.
Labor Cost as a Percentage of all Sales in four Simple Steps
Step 1: Gather your full income details
Collect your complete income information from income statements or POS sales reports. In this example, let’s imagine that your sales were $ 800,000 a year.
Step 2: Calculate your total cost of labor.
Calculate your total employee costs by adding all the operating costs categories such as salary, salaries, bonuses, and overtime. In this example, we would assume that your total annual employee cost was $ 240,000.
Step 3: Divide labor costs by Profit.
For instance, this gives us 0.3 ($ 240,000 divided by $ 820,000).
Step 4: Multiply the numb. You get by hundred.
Finally, multiply the number in the third Step by 100 to get your percentage. In our example, that applies to 30%
What Percentage Should Labor Cost Be In Any Restaurant?
You’re probably wondering if 30% of employee costs are reasonable. Most restaurants will account for 20 to 30% of sales, although the percentage varies by sector:
- Quick service: 28.4%
- Fast-casual: 29.9%
- Casual: 32.2%
- Upscale casual: 31.4%
- Pizza: 32.3%
Eight Ways to Control Cost Using Effective Restaurant Labor Allocation
Use the Right POS System:
Not all Point Of Sale systems is created equal. Find a system that, at a minimum, offers the following basic features:
- Inventory’s management.
- Customer’s relationship management (CRM).
- Staff management & communication.
- Basic marketing features.
- Sales reports.
- Labor reports.
- Employee scheduling.
Analyze Your Labor Reports
Review your performance reports against specific times of the day and seasons to improve your schedules and ensure you are not running out or not working enough.
Invest in the Right Employee Scheduling Tool
If you are like some restaurant’s owners, you:
- Create and manage schedules in Excel.
- Spend time creating and moving between programs.
- Strive to track and work schedule changes.
- Make mistakes when comparing actual organized employees.
- Risk of quality customer service or understaffing (let’s not forget that overuse affects staff costs).
Fortunately, the proper planning tool solves all these problems by helping you:
- Create schedules at any time for 30 minutes or less
- Minimize manager input when searching for employees with shifts using crowd-funding features
- Schedule the correct number of employees per hour
- Monitor and reduce employee costs by analyzing employee reports
Review Your Seasonal Hiring Policy
It is common for restaurant owners to hire temporary staff during peak hours such as summer. However, you may not need such a large staff of the season.
Reduce Operating Hours.
Review how busy your valued restaurant is on certain days and times of the week. If there are quiet times and income covers expenses, you can choose to reduce your working hours. The advantage of such a method is that you can focus wholeheartedly on your peaks.
Properly Train Staff
Train your employees so that they will feel empowered to do their job well and work well. Excellent efficiency ensures that you can organize employees who work without compromising the service. Training should include:
- Teaching employees how to use your POS effectively
- Communicate well with customer service standards for everyone
- Allowing new employers to work at the top so they can learn the best
Boost Staff Retention
Prices are very high in the restaurant industry. These high-income levels cost you money in the form of increased labor costs. Every time an employee leaves, you should invest time, money, and resources in recruiting and training a new employee. You can avoid this cost.
Analyze and Improve Processes
Evaluate your current processes, including timekeeping, asset management, and staff planning to identify employment opportunities to improve efficiency.
For example, instead of using manual clock locks, use an automated solution and apply the whole digital process while collecting valuable business intelligence.
The Bottom Line
Work of high restaurant costs that can be difficult to manage. Not only do you need to use the restaurant and save the tabs at some cost, but you also have to deal with rising wages.
The good news is that you can overcome this challenge and gain control by understanding your employee costs, knowing how to calculate, track percentages of your personnel costs, and, most importantly, using the right strategies such as investing in the right personnel planning tool.