7 Ways to Lower Restaurant Labor Cost

In about one week the restaurant industry went from paying overtime to employees because of a shortage of employees to skyrocketing unemployment rates. Although this tip does not directly address labor management during and through the pandemic, the principles to controlling labor costs are the same. And they are also incredibly important as restaurant owners manage uncertain sales volumes. With that said, click the video below or scroll to read seven ways to control your restaurant labor costs.

I've been that manager who waited too long to cut and had my butt chewed out by the owner because my labor costs were so high. As an owner, you’re going to have managers make that mistake again and again – unless you teach them seven ways to control their labor costs.

Please note these tips for controlling your labor cost are not earth shattering. They are not groundbreaking. But you’d be surprised how many restaurant owners let bad practices go on, bleeding labor dollars.

Here are seven ways to reduce your labor costs and control them.

Number one, check that your employees are not clocking in too soon. Every 15 minutes extra they add to their time is one step closer to overtime. If they don’t think you’re watching, employees will ride the clock. You have to pay attention to the process and establish a system. Managers should know what time somebody should be coming in and then ensuring they're not clocking in too early.

Number two is employees should be clocking out when you tell them. When you let people off early, either by request or necessity, make sure employees clock out at that time. Otherwise, they’re “clocking out time” can also include having a smoke, eating, flirting with a server, generally dragging feet. They’re not working, and they are milking the time clock. If an employee comes in early, stays longer, makes their side work take much longer, they’re making more money, and you’re losing money. 

Number three is to audit your time keeping. Make sure that your employees are punching into the right job codes. Pay rates differ based on the job description. An employee can be a server and a server trainer in one day, making $2 more an hour more as the trainer. One employee could be a dishwasher and a prep cook, making $2 more as a prep cook. Make sure they’re punching the clock according to the right job code. If you don’t pay attention, your employees will take advantage.

Number four, audit sales every half-hour in your POS system. If you don't have a POS system, go get one. It is one of the most important pieces of equipment you'll ever purchase. But POS systems have a half-hour or hour-by-hour sales report. I like half-hour. See, you don't want to sit there and see a full restaurant and think you don't need to cut employees when really, two hours earlier your restaurant was full. But now people are eating desserts and drinking coffees and sales are through the floor. You can start cutting people and have people watch other people's sections and get ahead of you labor. These are all really, really important.

Number five is schedule staff according to sales. If you’re going to be really, really busy, make sure that's when you're bringing people in. Now, there is a little nuance to that, because sometimes on a Monday, after a really busy weekend, you have extra prep that has to get done. For a lot of restaurants, Monday is the slowest sales day of the week, but you have production. So some adjustments can be made, but make sure you're scheduling based on the sales you've got in general.

Number six is avoid overtime at all costs – with an asterisk. If you're scheduling one of your employees overtime every single week because you don't want him or her to get a second job, understand you're giving them time and a half and if you were staffed properly, that half-time would be in your back pocket. You'd only be paying somebody else single time. Now, the asterisk applies to seasonal businesses. For example, I worked with a restaurant owner who had a sports bar in Augusta, Georgia, that is blocks away from the Masters. When the Masters Tournament comes in every year, they have incredible overtime. But you know what? Their sales are through the roof. They don’t want to or need to hire new employees for a week-long event. So, that one week they have overtime. You might have it from time to time if your sales will pay for it, which creates the efficiencies.

Number 7, last but not least, make selection and training a priority. If you select bad people, if you saw good people and you don't train them and you've got bad employees, they are costing you in workers’ comp, wasted food, pissed off guests, reduce sales. You both deserve for your employees to know how to do the job the way you want it done.

Take this free restaurant evaluation. It takes about 10-15 minutes to fill out and when you're done, you’ll have a 20-25-page customized report based on your answers about your restaurant. It will show you where your gaps are in the 23 stages. There are no strings attached. Just look at it for where your gaps are and what you should be working on now.

I teach systems in my book, Restaurant Prosperity Formula: What Successful Restaurateurs Do, which you can order here.