How to Manage Labour Cost in Hospitality

The world of hospitality is as competitive as ever, and so is the cost of labour. It has been a prominent issue in the industry, especially considering the movement to increase the minimum wage. That said, you need to manage your labour costs efficiently and have the aspect of profitability in mind. Investing in tools with roster budgeting feature plays a significant role. 

For hotel groups and restaurants, it is one of the highest expenditures. It usually represents 20-25% of your overall live roster costs, which doesn’t include your management salary costs yet. The hospitality industry controls exceptionally narrow margins, which can eventually add up to a certain amount. And, paying some people isn’t always the solution, especially if it affects the customer experience. 

To have an effective countermeasure, we’ve rounded up different ways to manage labour costs across different areas while keeping service quality gilt-edged. 

1. Manage Attrition Rate of Employees 

Also known as churn rate, an attrition rate is a value at which employees leave. Recruitment, training of newly hired employees, efficiency, and lost working hours are part of attrition-related costs. The driving factors trailing this trend are intense competition, swooping for growth opportunities, and long working hours. 

Moreover, the reason behind the hospitality industry’s high labour costs is the high attrition rate. You can manage this by providing better growth opportunities for your employees, enhancing work culture experience, adopting employee loyalty programs, and providing incentives. A clear employee well-being policy and team-building activities are highly feasible regarding employee retention. 

2. Implement a Proper Salary Structure 

One way to motivate employees and control costs is by a commission-based salary scheme. Thus, it is recommended to have a composite indicator package for your team, which includes performance or commission-based and fixed bonus structures. You can convert your retirement or pension plans into profit-sharing programs if you have them. 

Also, part-time or temporary workers can be assigned to a complete commission-based salary scheme. Make sure to review salary and profit levels regularly; doing so helps eliminate costs that put your business labour percentage expenses beyond the industry average. Remember, this step should only be taken after an open discussion with your staff who would be affected. Otherwise, you’ll face a high employee turnover rate. 

To help you generate a proper salary structure, invest in a payroll integration roster that can spare your time and money. 

3. Cross Train Your Employees 

Allowing some of your employees to cross-train ensures they can handle multiple roles and tasks. This puts your entire workforce to an advantage because the process, per se, ensures your team can lead to a growth of professional capabilities. The latter is often supported warmly by employees. Plus, it can even handle unforeseen vacancies in the hospitality industry. 

Two more great things about cross-training - it develops empathy at the organisational level and provides team-building opportunities.

4. Hire Temporary Assistance 

Temporary or part-time employees are often charged an hourly rate. This is lower compared to the rate of permanent employees. Likewise, since permanent employees are entitled to statutory benefits, it is a more significant commitment from a financial standpoint. Hence, engaging with part-timers for additional help makes more sense.  

If you’re a restaurant owner, you can offload generic and unskilled chores to your temporary team, lessening the burden of your tenured and professional employees. There are undoubtedly certain days of the year that are busier than usual. To accommodate the annual spikes in your business, it’s wise to employ seasonal workers. 

You can hire them contractually for a few months and offer them permanent employment if they’ve been an excellent asset to your business. This serves as a strategic way to reduce labour costs. 

5. Invest in Recruitment 

It indeed goes far beyond funds and profit if you invest in recruitment. The process itself requires your total effort and time. Make sure to review job profiles properly and concentrate on your requirements. Rather than hastily hire someone to fill the vacancy, look for applicants who best fit the role. 

Remember that hiring the wrong person for the wrong job would only cause additional recruitment/training costs and attrition. Per the estimates made by experts in the hospitality industry, the hiring cost is about 25% of the average salary. So, any wrong decision here might put your business at risk in the long run. 

Hence, you must understand and learn how to generate a proper hiring structure. 

6. Reassess and Schedule 

A business in the hospitality industry is highly dynamic and is mainly affected by various occasions and seasonality. Make sure to review your customer traffics on holidays and weekends and plot schedules using rostering software for your tenured employees. You can then hire part-timers to assist and plan your overall business budget. 

With this, you can control your payroll cost, reduce wastage in the kitchen, and manage your restaurant accordingly during peak season. 

7. Invest in Roster Software and Other Automation

Had the hospitality industry not matured exponentially in recent years, it would be a big statement to make about how technology is replacing human labour. Technology has indeed automated various hospitality operations wherein less human effort is required. The aspects of digital features such as online ordering, table reservation, and automatic billing have required less human intervention. 

Since technology needs less human effort, this helps in decreasing hospitality labour costs. 

8. Assess and Promote Employee Effectiveness

Assessing and optimising your team’s effectiveness is challenging in the hospitality business. However, that is still attainable through setting Key Performance Indicators (KPI) and defining goals. For example, you can assign the kitchen team to check the food cost. Likewise, you can give every server a target for producing a sales figure. 

You can assess your employees' performance by fetching data from your hospitality software app. Through this, it’ll be easy for you to measure and improve their efficiency so they can share more with your business. This is a great way to mitigate labour costs without retrenchment. 

Always analyse every business area and take the necessary measures to manage labour costs effectively. 

Takeaway 

Optimising your labour costs, though it can be challenging at first, is achievable once you know your way through it. And part of the equation is knowing the right people, the right tools, and the right data. The moment you invest in the most appropriate software to get reports, updates, and measure data that is considered the prime framework of success. 

To help you with your labour expenditure, scheduling, and employee engagement, RosterElf provides you with a wide range of digital tools ideal for your workforce. We've got you covered from Rostering Software, Payroll Integration, Award Interpretation, and Scheduling Software.

Want to know more? Don’t hesitate to call us at 1300 353 000, and we’ll be happy to be of service.

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