Labor Cost Reducing Tactics
Published March 8th, 2022
Labor costs are one part of a restaurant’s prime costs, and prime costs are responsible for over half of a restaurant’s overall costs. Restaurant labor costs are one the most controllable costs for a location, and the results of properly managing a restaurant’s labor costs can be realized almost immediately.
Controlling labor costs is crucial to a restaurant’s continued survival. But labor costs for restaurants are not a stationary target. A venue’s labor costs are dynamic throughout the year, fluctuating with business, and they will change year on year as business levels change.
Here we’re going to use the labor cost dollar amounts to calculate a figure that can be used to assess how efficient a restaurant is when it comes to its labor costs. After that we’re going to look at labor cost reducing tactics that can be implemented to bring those costs down.
What Should Labor Costs Be In a Restaurant?
The ideal restaurant labor costs are between 25-30% of total sales, and can vary greatly by location. Quick serve locations that require fewer service staff may be able to push their labor costs below 25% of their total sales, but fine dining locations may find that their labor costs stay above 30% of their total sales.
Labor costs are typically viewed as a percentage of total sales. The formula for calculating labor costs is a simple one:
(Total Labor Costs ÷ Total Sales) x 100 = Labor Costs as a Percentage
It is important to note that total labor costs are not just the sum of all the wages and salaries paid out to employees. Total labor costs include everything associated with labor, including:
- Insurance
- Employment taxes
- Paid time off, PTO
- Workers compensation
- Employee benefits e.g. shift meals
The ideal restaurant labor costs are between 25-30% of total sales, and can vary greatly by location. Quick serve locations that require fewer service staff may be able to push their labor costs below 25% of their total sales, but fine dining locations may find that their labor costs stay above 30% of their total sales.
Labor costs are typically viewed as a percentage of total sales. The formula for calculating labor costs is a simple one:
(Total Labor Costs ÷ Total Sales) x 100 = Labor Costs as a Percentage
It is important to note that total labor costs are not just the sum of all the wages and salaries paid out to employees. Total labor costs include everything associated with labor, including:
- Insurance
- Employment taxes
- Paid time off, PTO
- Workers compensation
- Employee benefits e.g. shift meals
The ideal restaurant labor costs are between 25-30% of total sales, and can vary greatly by location. Quick serve locations that require fewer service staff may be able to push their labor costs below 25% of their total sales, but fine dining locations may find that their labor costs stay above 30% of their total sales.
Labor costs are typically viewed as a percentage of total sales. The formula for calculating labor costs is a simple one:
(Total Labor Costs ÷ Total Sales) x 100
= Labor Costs as a Percentage
It is important to note that total labor costs are not just the sum of all the wages and salaries paid out to employees. Total labor costs include everything associated with labor, including:
- Insurance
- Employment taxes
- Paid time off, PTO
- Workers compensation
- Employee benefits e.g. shift meals
How to Reduce Labor Costs in a Restaurant
A quick tip is to also calculate labor costs by department, i.e front of house and back of house. This can help to pinpoint where labor reducing tactics might have the greatest effect and could tell you which ones to implement first. Labor reducing tactics focus around two goals:
- Increasing employee efficiency to reduce the amount of time they spend on the clock
- Balancing staffing levels with expected business levels
If there is a method to achieve one of these goals, without reducing the quality of service to guests, then it can be counted as a labor reducing tactic.
Sidework Sheets
Sidework sheets represent organization, and organization is key to increased efficiency. Sidework sheets lay out all the extra responsibilities and expectations for an employee outside of their primary restaurant role on that day. Sidework typically focus on three different periods of the restaurants working day: opening, changeover, and closing. Sidework sheets increase employee efficiency and reduce the amount of time it takes them to complete their necessary tasks.
Sidework sheets represent organization, and organization is key to increased efficiency. Sidework sheets lay out all the extra responsibilities and expectations for an employee outside of their primary restaurant role on that day. Sidework typically focus on three different periods of the restaurants working day: opening, changeover, and closing. Sidework sheets increase employee efficiency and reduce the amount of time it takes them to complete their necessary tasks.
Sidework sheets represent organization, and organization is key to increased efficiency. Sidework sheets lay out all the extra responsibilities and expectations for an employee outside of their primary restaurant role on that day. Sidework typically focus on three different periods of the restaurants working day: opening, changeover, and closing. Sidework sheets increase employee efficiency and reduce the amount of time it takes them to complete their necessary tasks.
Recipe Cards
Detailed recipe cards can increase the time efficiency of prep cooks by streamlining their work flow. Recipe cards should contain ingredients, cooking and food preparation utensils, along with a detailed list of recipe steps. Having detailed recipe cards for everything prepared in-house can also help to increase product consistency.
Detailed recipe cards can increase the time efficiency of prep cooks by streamlining their work flow. Recipe cards should contain ingredients, cooking and food preparation utensils, along with a detailed list of recipe steps. Having detailed recipe cards for everything prepared in-house can also help to increase product consistency.
Detailed recipe cards can increase the time efficiency of prep cooks by streamlining their work flow. Recipe cards should contain ingredients, cooking and food preparation utensils, along with a detailed list of recipe steps. Having detailed recipe cards for everything prepared in-house can also help to increase product consistency.
Cross Training
Having employees that are cross-trained can not only improve the guest experience but can also reduce the need to have multiple employees on during slower business periods. If the bartenders are competent servers then they can be given a section of tables, as well as the bar, and then a server need not be on shift. If servers are trained to manage the host stand, e.g. using reservation software or other reservation method, then a host might not be needed on slower days of the week. On slow days can an expediter complete the job of both the expediter and the food runner? All of these examples result in an increase in employee efficiency and also mean that there is one less employee on shift, resulting in an immediate reduction in labor costs.
Having employees that are cross-trained can not only improve the guest experience but can also reduce the need to have multiple employees on during slower business periods. If the bartenders are competent servers then they can be given a section of tables, as well as the bar, and then a server need not be on shift. If servers are trained to manage the host stand, e.g. using reservation software or other reservation method, then a host might not be needed on slower days of the week. On slow days can an expediter complete the job of both the expediter and the food runner? All of these examples result in an increase in employee efficiency and also mean that there is one less employee on shift, resulting in an immediate reduction in labor costs.
Having employees that are cross-trained can not only improve the guest experience but can also reduce the need to have multiple employees on during slower business periods. If the bartenders are competent servers then they can be given a section of tables, as well as the bar, and then a server need not be on shift. If servers are trained to manage the host stand, e.g. using reservation software or other reservation method, then a host might not be needed on slower days of the week. On slow days can an expediter complete the job of both the expediter and the food runner? All of these examples result in an increase in employee efficiency and also mean that there is one less employee on shift, resulting in an immediate reduction in labor costs.
Reducing Overtime
Overtime requires paying an employee more, typically 50% more, per hour worked and these extra costs can add up quickly. Overtime can be a necessary evil during busy periods but it shouldn’t happen every week. Reducing overtime to zero is the gold standard and proper scheduling and having enough employees on the roister to be able to be scheduled is key to accomplishing this. No overtime also means that no one is overworked and that staff can have a better work-life balance, potentially reducing workplace stress.
Overtime requires paying an employee more, typically 50% more, per hour worked and these extra costs can add up quickly. Overtime can be a necessary evil during busy periods but it shouldn’t happen every week. Reducing overtime to zero is the gold standard and proper scheduling and having enough employees on the roister to be able to be scheduled is key to accomplishing this. No overtime also means that no one is overworked and that staff can have a better work-life balance, potentially reducing workplace stress.
Overtime requires paying an employee more, typically 50% more, per hour worked and these extra costs can add up quickly. Overtime can be a necessary evil during busy periods but it shouldn’t happen every week. Reducing overtime to zero is the gold standard and proper scheduling and having enough employees on the roister to be able to be scheduled is key to accomplishing this. No overtime also means that no one is overworked and that staff can have a better work-life balance, potentially reducing workplace stress.
Self Ordering
The pandemic introduced the public, en masse, to self ordering. These processes are often viewed through the lens of customer convenience, however, they are also a great labor reducing tactic as they reduce the amount of employees needed on the restaurant floor. Self ordering comes in many forms. It can be via a QR code on the table or menu, through a self ordering kiosk, or via a dedicated mobile app. ActiveMenus offers digital solutions like beautiful and branded mobile apps and sleek website ordering platforms that can help to enhance the self-ordering customer experience.
The pandemic introduced the public, en masse, to self ordering. These processes are often viewed through the lens of customer convenience, however, they are also a great labor reducing tactic as they reduce the amount of employees needed on the restaurant floor. Self ordering comes in many forms. It can be via a QR code on the table or menu, through a self ordering kiosk, or via a dedicated mobile app. ActiveMenus offers digital solutions like beautiful and branded mobile apps and sleek website ordering platforms that can help to enhance the self-ordering customer experience.
The pandemic introduced the public, en masse, to self ordering. These processes are often viewed through the lens of customer convenience, however, they are also a great labor reducing tactic as they reduce the amount of employees needed on the restaurant floor. Self ordering comes in many forms. It can be via a QR code on the table or menu, through a self ordering kiosk, or via a dedicated mobile app. ActiveMenus offers digital solutions like beautiful and branded mobile apps and sleek website ordering platforms that can help to enhance the self-ordering customer experience.
Cutting Employees
If there are too many employees in the restaurant for the level of business the restaurant is experiencing then some should be sent home to reduce unnecessary labor costs. It is best for a manager to use their best judgment here because they know best about how business flows in their venue. Some states have reporting time pay laws that require employers to pay non-exempt employees a minimum amount of hours worked if they show up to a shift and are then sent home.
If there are too many employees in the restaurant for the level of business the restaurant is experiencing then some should be sent home to reduce unnecessary labor costs. It is best for a manager to use their best judgment here because they know best about how business flows in their venue. Some states have reporting time pay laws that require employers to pay non-exempt employees a minimum amount of hours worked if they show up to a shift and are then sent home.
If there are too many employees in the restaurant for the level of business the restaurant is experiencing then some should be sent home to reduce unnecessary labor costs. It is best for a manager to use their best judgment here because they know best about how business flows in their venue. Some states have reporting time pay laws that require employers to pay non-exempt employees a minimum amount of hours worked if they show up to a shift and are then sent home.
Review Scheduling Practices
If a restaurant is regularly cutting employees then they should review their scheduling practices to prevent this from happening. Restaurant scheduling is dynamic across all periods but that does not mean that data cannot be used to improve scheduling practices. Schedule data from this period last year along with sales forecast data can be used to greatly improve scheduling practices. It is also good to make notes regarding scheduling each day so when looking back at previous data it is possible to see what the impact of scheduling was that day.
Working out labor cost percentages on a macro, day-to-day basis can also help to give an insight into labor percentage fluctuations over the course of the week and to identify days where labor costs can be reduced. The main tactic here is to bring employees in later or have them leave earlier so that they cross over for the rush and are not clocked in when they don’t need to be.
If a restaurant is regularly cutting employees then they should review their scheduling practices to prevent this from happening. Restaurant scheduling is dynamic across all periods but that does not mean that data cannot be used to improve scheduling practices. Schedule data from this period last year along with sales forecast data can be used to greatly improve scheduling practices. It is also good to make notes regarding scheduling each day so when looking back at previous data it is possible to see what the impact of scheduling was that day.
Working out labor cost percentages on a macro, day-to-day basis can also help to give an insight into labor percentage fluctuations over the course of the week and to identify days where labor costs can be reduced. The main tactic here is to bring employees in later or have them leave earlier so that they cross over for the rush and are not clocked in when they don’t need to be.
If a restaurant is regularly cutting employees then they should review their scheduling practices to prevent this from happening. Restaurant scheduling is dynamic across all periods but that does not mean that data cannot be used to improve scheduling practices. Schedule data from this period last year along with sales forecast data can be used to greatly improve scheduling practices. It is also good to make notes regarding scheduling each day so when looking back at previous data it is possible to see what the impact of scheduling was that day.
Working out labor cost percentages on a macro, day-to-day basis can also help to give an insight into labor percentage fluctuations over the course of the week and to identify days where labor costs can be reduced. The main tactic here is to bring employees in later or have them leave earlier so that they cross over for the rush and are not clocked in when they don’t need to be.
Increase Employee Retention
We spoke about the importance of employee retention, and how to go about increasing employee retention, in this article. Hiring and training employees is an expensive process, estimated to cost 25% to 40% of their expected annual pay. The way to reduce this is to increase employee retention so this cost simply doesn’t happen.
We spoke about the importance of employee retention, and how to go about increasing employee retention, in this article. Hiring and training employees is an expensive process, estimated to cost 25% to 40% of their expected annual pay. The way to reduce this is to increase employee retention so this cost simply doesn’t happen.
We spoke about the importance of employee retention, and how to go about increasing employee retention, in this article. Hiring and training employees is an expensive process, estimated to cost 25% to 40% of their expected annual pay. The way to reduce this is to increase employee retention so this cost simply doesn’t happen.
Labor Management Incentives
Having more staff on shift makes a manager’s job easier and managers are likely to keep employees on the clock for this reason. If a manager is not incentivized to control the labor costs of their venue then they will keep extra, often unnecessary, staff on shift resulting in perpetually high labor costs. High labor costs are often attributed to the venue’s ability to consistently meet or exceed a high standard of customer experience. However, a high standard of customer experience can also be achieved and maintained in restaurants operating within their budgeted labor cost range.
Managers, both front and back of house, should be incentivized to make decisions that are both financially smart for the business and in the best interest of the customer experience. Many restaurant owners will tie the managers’ bonuses to targets for both their venue’s labor percentages and the results of quality of service reviews. Ensuring consistency in these reviews can be done by using secret shoppers.
Having more staff on shift makes a manager’s job easier and managers are likely to keep employees on the clock for this reason. If a manager is not incentivized to control the labor costs of their venue then they will keep extra, often unnecessary, staff on shift resulting in perpetually high labor costs. High labor costs are often attributed to the venue’s ability to consistently meet or exceed a high standard of customer experience. However, a high standard of customer experience can also be achieved and maintained in restaurants operating within their budgeted labor cost range.
Managers, both front and back of house, should be incentivized to make decisions that are both financially smart for the business and in the best interest of the customer experience. Many restaurant owners will tie the managers’ bonuses to targets for both their venue’s labor percentages and the results of quality of service reviews. Ensuring consistency in these reviews can be done by using secret shoppers.
Having more staff on shift makes a manager’s job easier and managers are likely to keep employees on the clock for this reason. If a manager is not incentivized to control the labor costs of their venue then they will keep extra, often unnecessary, staff on shift resulting in perpetually high labor costs. High labor costs are often attributed to the venue’s ability to consistently meet or exceed a high standard of customer experience. However, a high standard of customer experience can also be achieved and maintained in restaurants operating within their budgeted labor cost range.
Managers, both front and back of house, should be incentivized to make decisions that are both financially smart for the business and in the best interest of the customer experience. Many restaurant owners will tie the managers’ bonuses to targets for both their venue’s labor percentages and the results of quality of service reviews. Ensuring consistency in these reviews can be done by using secret shoppers.
Final Considerations
When reducing labor costs, especially when looking at staffing and scheduling, it is good to keep in mind that labor costs should never be reduced at a detriment to the level of service expected in that establishment. Finally, if a location’s labor costs are not where they need to be, and they cannot be reduced further without being detrimental to customer service or employee satisfaction, then managers and and owners will want to look at other cost reducing tactics as well as methods of increasing revenue that don’t involve an increase in labor costs e.g. menu engineering.