Restaurants have a lot of overhead, and one of the areas where costs are often overlooked is labor. You have to pay your staff, and if your scheduling is off, you may have staff sitting around being paid while not working much.

When you learn how to manage a restaurant, you should be taught how to reduce labor costs.

Labor will account for 25% to 45% of your restaurant’s operating budget. Minimum wage rate hikes and overtime pay laws are putting a strain on many managers and owners to cut back on total labor spending. Prioritizing your scheduling can help lower these expenditures. Learn how to manage labor costs in a restaurant with the following tips.

labor cost for restaurants

1. Start by Surveying Your Employees on Preferred Shifts

When hiring, it’s important to ask job candidates what their ideal shift times would be. If you ask about preferred shifts and schedule these individuals accordingly, you’ll be able to reduce:

  • Call-outs
  • Overtime
  • Incompatible schedules

A waitress or cook with a child may not be able to work the lunch shift, but they’ll be able to work effectively on the dinner or breakfast shift. If you know which schedules work best for your employees, you’ll reduce a lot of additional spending, such as overtime for a cook who has to cover the worker’s shift when they can’t make it to you.

2. Analyze Your Service Trends

Every restaurant has shifts that are busy and shifts that are slow. When these slow periods begin, it doesn’t make sense to have a full staff like you would on a Saturday night when only three waitresses are needed instead of five.

Track your day-to-day operations, and over time, you’ll be able to cut down staff that may not be necessary on certain days or shifts. When managers watch service trends, they’ll be able to make schedules a week or two in advance to help make the entire restaurant more efficient. 

Labor costs should be calculated daily. This is a tedious process, and it is one that requires management members to be on agreement. Every day, you should be adding up your labor expenses and sales, dividing the two to determine how much your costs are in terms of percentage.

You want to try and keep labor costs between 25% and 45% of all of your expenses, but if you can get these down further without impacting customer service, you should try. A good figure to try and achieve is having labor costs around 30%.

Scheduling should also be done based on sales forecasts. For example, let’s assume that you need to have 15 employees working on a Friday night during your busy season. Knowing your service trends, you determine that sales fall by 30% after August 30 when your busy season comes to an end. If you still have 15 employees on the floor, you’re going to increase your labor costs for no reason.

You need to use previous data to be able to predict sales accurately. When you’re able to predict sales, you’ll be able to schedule the right number of employees – whether it’s more or less.

labor costs

3. Invest in Scheduling Tools

Restaurant labor laws are in place to ensure that workers are paid a sufficient wage and also that they’re paid sufficiently for overtime work. Managers may have difficulty scheduling employees, managing time-off requests and also knowing which shifts employees prefer.

When you invest in scheduling tools, you’re able to help automate shift management and provide managers with the tools they need to work faster. Management costs will fall, double scheduling will not occur and employees will be kept happier because of accurate scheduling with no conflicts.

4. Incorporate Employee Collaboration Tools

Labor control should also incorporate collaboration tools. Employees can overwhelm management with requests via email, phone or in-person, but when there are collaboration tools in place, it’s a lot easier and less timely to manage scheduling.

Managing labor costs can be done with the following collaboration methods:

  • Employee-only Facebook groups
  • Email distribution lists
  • In-house software

Managers and owners need to understand their worth. If the person who handles scheduling has to spend 5 extra hours per week to manage schedules because of a large staff and requests, it’s time to look for methods of automation. Processes should be refined to be able to make scheduling as efficient as possible.

If the person who normally does scheduling is overwhelmed, it may be time to have a new set of eyes look over the process. Perhaps you can hire someone to analyze the scheduling so that you can lower management costs, labor costs and run a better service.

restaurant labor cost

5. Schedule Fewer Employees

Optimal staff will reduce the need for additional employees who are not needed. Having more employees doesn’t mean that the customer experience or service will be better. The goal is to ensure that scheduling allows for orders to flow, but you don’t want:

  • Employees working at half speed
  • Employees sitting around bored
  • Employees with nothing to do

Managers will need to be very cautious with scheduling because there’s a fine line between having too few employees and meeting shift demands. Customers do not want to wait for their food. If you don't schedule enough line cooks and orders take 10 minutes longer to get to the table, the customer experience will suffer.

A lot of owners will schedule to the point where they think that they’ll need just one additional person on the floor. The lack of the extra person keeps staff moving, reduces wasted time and sitting around, and pushes employees with a “sense of urgency.”

And when employees stay focused, this leads to:

  • Happier customers
  • Lower restaurant labor costs
  • More tips for servers

Servers will earn more tips when you schedule only the needed number of people to work per night. Higher tips and nightly pay will also lead to less employee turnover, further reducing a restaurant’s costs.

reducing labor costs

6. Remove or Retrain Underperforming Staff Members

If you can crunch the numbers, you’ll be able to determine which staff members are most efficient. Perhaps every server on the floor is able to handle 25 tables a night, but there’s one employee who can only handle 12. You need to retrain this employee so that they can be more efficient in their position. Of course, there are times when a person may not be able to increase their performance, but this will be determined on an employee-by-employee basis. 

With that said, if an employee routinely underperforms, it may be time to terminate them and hire someone who is not cutting into labor costs unnecessarily. Efficient employees also need managers and owners to properly assess all processes, from the bar to the kitchen, to be able to determine where time is lost.

Remodeling a kitchen to allow for faster food delivery may help reduce labor costs by 10% - a worthwhile investment.

Working together with employees and management will be able to provide insights into what works best for your restaurant. You may find that small changes can lead to a big difference in the efficiency of your workforce. A more efficient, lean workforce is one that meets the demands of customers while also lowering overall restaurant costs in the process.