One magazine that restaurateurs should be reading is Restaurant Startup and Growth. It’s targeted at independents, owner/operators, and small chains.
Their monthly articles focus on inventory, restaurant and labor tips, staffing questions, leasing, marketing, and other important topics for independent restaurants (though most of the advice is applicable to retailers that are in other industries as well).
This month, July 2009, there is an excellent article from Jim Laube, entitled “Fairy Tales! The Top 10 Myths of Restaurant Profitability“.
Two of these myths focus on labor, and labor costs, including Myth 5 and Myth 6.
We think it’s important to be aware of these myths, so we’ve outlined them below, peppered with our own decades of experience working in the restaurant industry. Both of myths make for great labor tips that can be applied to your restaurant business.
Myth: Paying Higher Wages Increases Labor Costs
As Jim Laube explains, every restaurant (or retail business) has its superstars. These are employees who can do twice (or more) the amount of work as any other staff member.
- a cook that can cook more than anyone else
- a busser who can keep the whole store clean without any help
- a cashier who can run two lines
These employees are, to put it frankly, “busting it“, and should be paid more than someone who just does the “minimum“.
However, paying a superstar more than their co-workers doesn’t increase labor costs, it often decreases them. Let’s talk about when and how this is the case.
When and how paying higher wages can decrease labor costs
Which scenario would you rather have, assuming that both scenarios are able to serve an equivalent number of customers?
Scenario 1: Two bartenders making $8.50 / hour, working a 5 hour shift?
Total wages: $8.50 per hour * 2 employees * 5 hours = $85
Scenario 2: One bartender making $12.00 / hour, working a 5 hour shift?
Total wages: $12.00 per hour * 1 employee * 5 hours = $60
A superstar bartender (Scenario 2) can outwork, and at a lower overall cost, two mediocre bartenders.
Finding these superstar bartenders is part of the difficulty in managing, but if you can find them, and promote them, your business will profit.
And if you’re wondering whether other staff members will find out and get upset that you’re paying the superstar more – don’t sweat it. If they do find out, that can work in your favor. After all, what will they be discovering, really? That working hard pays off. And if that motivates employees to try harder, that’s even better.
Higher productivity = increased profits.
Myth: Paying Overtime is a Sign of Bad Management or Poor Scheduling
In most restaurants, there is an operational mandate to ensure that part-time staff members work less than 35 or 40 hours per week.
This is in effort to keep from paying overtime, which is commonly 50% more expensive (time and a half), or even 100% more expensive (double time).
While this is a great idea from an hours and cost perspective, this mandate does forget about one key factor: the employee.
When and why paying overtime is a good thing
Commonly, employees who are working in part time positions need the extra hours to make ends meet. These staff members, who may be critical to the business, have certain financial needs and sometimes need to work extra hours to meet these needs.
By not allowing these staff members to work extra hours (perhaps 45 to 50 hours) occasionally, they may seek employment elsewhere, costing the business in hiring, turnover, and lost business while seeking a replacement.
If at all possible, try to accommodate employee needs, be it with the occasional extra overtime hours, or scheduling staff on certain days to work around a second job or specific availability.
Staff members are less likely to go elsewhere if all of their needs can be met at one particular job.
If you found these labor tips useful, make sure to read some of the other myths published in Restaurant Startup and Growth.
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