Why Paying Your Restaurant Employees More Now Saves You Cash Later

The restaurant industry has one of the highest employee turnover rates in the nation. A new study shows that low pay and benefits are the likely culprits. It also indicates that it would be beneficial to a restaurant operator to look for strategies in order to retain old employees rather than paying to hire and train new ones.

The study entitled “High Road 2.0: A National Study of Human Resource Practices, Turnover and Customer Service in the Restaurant Industry,” conducted a phone survey of managers from 1,150 restaurants around the country. The study examined management practices and outcomes across four customer segments; upscale fine dining, casual fine dining, moderately priced family restaurants and fast food/quick-service restaurants. The results were telling indeed.

Just How High Is the Turnover Rate in The Restaurant Industry?

Amazingly, almost one in every two fast food workers quits or is fired each year, bringing the turnover rate for this segment to a whopping 47%. Moderately priced restaurants weren’t much better, with a typical year bringing around a 40% turnover rate. Casual fine dining and upscale fine dining clocked in at 28% and 26%, respectively. The average cost of that turnover rate is somewhere around $18,200 per year for a restaurant with 30 employees. In a chain restaurant of more than 100 locations, the cost of such a high turnover rate grows into the millions of dollars.

The Link Between Pay, Benefits and Restaurant Employee Turnover Rates

As you can see, the turnover rate for restaurant employees decreases as the customer segment moves up the ladder. The fact that quick-service workers get drastically less in terms of pay and benefits than their upscale counterparts is most certainly a major factor in the differential between turnover rates. Fast food workers take home an average of $255 a week, whereas moderate family restaurant workers bring in an average of $431, casual dining employees bring home $573 and upscale restaurant workers take home an average of $659 a week.

Workers’ benefits, such as paid vacation and paid sick time, are often limited since, in many instances, they are kept at just under full time hours. Approximately 32.4% of fast food workers get some form of paid vacation, whereas 52.3% of upscale workers get this benefit. Somewhere around 30% of fast food, and moderate and casual fine dining workers, get employer subsidized health insurance, while upscale employees average closer to 53.8%.

The Take Home Point About Restaurant Employee Turnover Rate

The point here is it would cost less in the long run for you to pay more to retain your employees now, rather than hire and retrain new ones later. The authors of this study concluded that through careful analyses and better HR practices, a restaurant’s turnover rate could be reduced by as much as half.

In an industry which employs 10 million people and brought in an estimated sales revenue of $660.5 billion last year alone,  it only makes sense to put the people that make it possible first. Sara Jayaraman, Co-Founder and Co-Director of ROC United, an organization committed to improving wages and working conditions for restaurant workers, says it best:

The restaurant industry is extraordinarily people-powered, yet one of the least worker friendly industries out there, which comes with a major financial cost to each restaurant. The bottom line can grow as a result of ethical, high road employment practices.

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3 Responses to “Why Paying Your Restaurant Employees More Now Saves You Cash Later”

  1. lyndaybaker Says:

    Good observation. This is well known in other industries. You have to be willing to pay for talent or you will use it ( and yes, I did mean talent…Not everybody can do the job, with excellent quality and a smile day after day). It is more cost effective (up to a certain point, clearly not reached in most cases) to keep your employees happy, than to replace them over and over again. However, I love that (for the time being, at least) we have the freedome to pay our employees what we want and reap what we sew.

  2. lyndaybaker Says:

    Reblogged this on lyndaybaker and commented:
    I thought this was on target. If you do not pay your talent (yes-talent-hard worker, that loves to serve with a smile) an attractive wage, they will leave. The cost of turn over compared to the cost of keeping a great employee…Hmmmm…What to do…What to do.

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