10 Ways to Reduce Restaurant Labor Costs

It just so happens that the two biggest costs for a restaurant — food and labor — are also the most volatile. Supply chain challenges and inflation have sent food costs skyrocketing. That has restaurant operators furiously searching for ways to bring down the other half of the equation: labor costs.

We recently looked at the different ways to calculate and forecast restaurant labor costs. Now that you have a firm grasp of what goes into calculating your labor needs let’s explore ten steps you can take to lower your restaurant labor costs.

1. Improve demand forecasting accuracy

In today’s restaurant world, traditional forecasting often falls short. It’s time-consuming and subjective, leading to costly mistakes. But there’s a better way. Using data-driven AI forecasting methods, restaurant leabut ders can make more accurate labor predictions. This helps restaurants quickly adapt to sudden changes in customer demand while fighting the ever-present challenges of tight budgets and rising costs.

AI labor forecasting uses machine learning to analyze massive amounts of internal and external data points, such as years of historical sales data, special offers, holidays, and even the weather. Instead of relying on human judgment, which can be flawed or biased, the system does the heavy lifting. Every day, it learns and gets better at predicting what’s next, offering restaurant operators confidence as they plan for the days, weeks, and months ahead.

2. Schedule smarter

When you don’t have enough staff, you pay more overtime, burn out your employees, and miss out on sales. Our data shows that restaurants can lose up to 10-25% of their gross revenue per location when not staffed properly to meet demand. Overstaffing can be just as bad — wasting your labor dollars and making servers unhappy when their tip income takes a nosedive.

The answer? Schedule smarter — put the right people in the right shift at the right time. It sounds simple, but as any restaurant manager can attest, getting scheduling right can often feel like an effort in futility. Manually balancing anticipated demand with employee availability, not to mention ensuring compliance with local, state, and national labor laws, can occupy hours of a manager’s time.

However, it’s possible to staff appropriately and free your managers from the scheduling burden. Implementing an automated scheduling solution using AI-driven forecasts and a compliance rules engine can save managers upwards of 4 hours per week while giving them the necessary insights to build schedules based on demand. You’ll regain control of your labor budget, drive improvements in overall sales, and boost customer satisfaction rates. Everybody wins.

3. Reduce overtime

The Department of Labor unveiled a proposal in August that would elevate the minimum salary threshold for overtime eligibility under the Fair Labor Standards Act to $1,059 weekly, or $55,068 annually. This change would bring overtime eligibility to an estimated 3.6 million workers.

While overtime can sometimes be a necessity, it can also wreak havoc on your labor budget. A regular pattern of overtime can tank employee performance and accelerate burnout. Thankfully, technology can help restaurants keep a tight rein on overtime. By using scheduling software that integrates accurate demand forecasting and real-time compliance alerts, managers can be proactive rather than reactive. Overtime becomes a rarity, not the norm.

4. Hire part-time or seasonal workers

Another effective way to reduce restaurant labor costs is to hire part-time or seasonal employees. These workers can fill in during peak times, like holidays or special events, to keep regular staff from being stretched too thin.

Bringing in part-time staff also helps you avoid the additional costs tied to full-time employment. There’s no need to pay for health benefits or paid time off. Plus, many seasonal employees understand the temporary nature of their roles, which can lead to a smoother transition when business demands change.

It’s an approach that keeps costs down while giving you more flexibility. With part-time or seasonal hires, restaurant managers can better match staffing to customer flow, delivering optimal service without overspending on labor.

5. Streamline employee hiring and onboarding

Efficient hiring isn’t just about filling seats. It directly impacts labor costs. When a position remains unfilled, it puts a strain on your entire operation — from potential overtime pay to costly mistakes made by stressed and overworked staff. But it doesn’t stop there. Prolonged vacancies could mean turning away customers or delivering lackluster service, both of which can lead to revenue loss.

Restaurants can bring on new people faster with applicant tracking software that optimizes the hiring processes. Managers using Fourth’s hiring software designed for the hourly workforce report 90% faster hiring. They can rapidly identify top candidates and reduce the lag time between an opening and a new hire.

You can build on this efficiency by implementing automated onboarding workflows that get good employees on the floor faster. New team members enjoy a consistent onboarding experience, acclimate more quickly, and get trained the right way the first time.

6. Cross-train staff

By teaching employees multiple roles, restaurant managers create a versatile workforce that can adapt to the needs of the moment. This can be especially valuable during a staff shortage. Imagine a server who can also mix drinks or a prep cook who can work the grill. During a slow shift, you can bring in fewer people and rely on one team member to handle the duties of multiple roles.

This more efficient use of your restaurant staff can go a long way to preventing ballooning labor costs. Managers rely on a leaner, multifaceted team capable of handling a variety of tasks, whether they’re cooking in the kitchen or serving customers in the dining room. The result is a more resilient operation, reduced overhead, and improved profit margins.

7. Reduce turnover

Black Box Intelligence estimates it costs restaurants $1,956 per hourly employee to replace someone who’s left. So, it stands to reason that getting a handle on turnover can only do good things for your bottom line.

It’s not just about saving on labor costs, either. According to Gallup, business units with engaged workers have 23% higher profits compared to those with miserable workers. They also enjoy lower absenteeism and accidents.

If you want to know what you can do to make your team want to stick around, check out these 15 tips to motivate restaurant employees.

8. Implement performance-based incentives

Speaking of keeping your people happy, performance-based incentives are a great way to lower labor costs while motivating employees. Offering bonuses or rewards to team members who meet or exceed specific targets encourages them to work more efficiently, leading to higher productivity per labor hour. For instance, a performance incentive might make a server handle more tables or upsell dishes, directly impacting the restaurant’s revenue.

Another bonus of these bonuses? A restaurant that recognizes and rewards its top performers often sees a decrease in turnover. And we already know a reduction in turnover means a reduction in labor costs. Performance-based incentives align employee goals with your goals for the restaurant. And that makes everyone happy.

9. Optimize operations

Wasted time is wasted dollars. And inefficient operations waste a lot of time. One area that’s ripe for improvement is managing inventory. Managers can save hours a week by automating inventory management. Not only does it eliminate some of their most tedious tasks, but it also frees them up to put more focus on efforts that will drive the business.

Eliminating manual counting is just the beginning. With built-in precision forecasting, Fourth’s inventory management solution helps restaurant managers save time with order suggestions based on historical sales, promotions, and events. Teams work more efficiently with digital checklists and optimized workflows that reinforce procedures. Everyone from managers to line cooks can maximize their time on the clock.

10. Embrace technology

From AI-powered demand forecasting to automated inventory management, we’ve talked a lot about how technology can help restaurant operators reduce labor costs. The fact is, as technological innovation continues at its breakneck pace, restaurants that fail to harness it will be left behind.

78% of multi-location restaurants adopted new technology to automate tasks in 2022, according to LightSpeed. Industry headlines featuring cleverly named bots abound, from “Flippy,” the burger flipper, to “Autocado,” the avocado peeler, to “BellaBot,” the food server. Much of this technology isn’t seeking to replace the human element so much as amplify it.

“One misconception there may be is that we will start using bots and stop using humans,” said Caitlin Stritmatter, Primanti Bros.’ director of financial planning and analysis. “That is very much not the case. We’re just trying to take thoughtless and time-consuming work and letting a bot do that.”

Invest in technology that empowers your restaurant managers and team to work smarter and faster. Chances are you’ll make them happier, too.

Go Fourth and conquer

No one ever said running a restaurant — let alone a chain of them — is easy, especially with rising costs everywhere you look. But we have good news. By adopting modern tech and some smart analog strategies, you can cut down on labor costs without sacrificing service. At the risk of sounding cliché, it’s all about working smarter, not harder.

Instead of getting overwhelmed with forecasts and schedules, let technology do the hard part for you. And remember, it’s not about replacing people with machines. It’s about giving your team the tools they need to shine. By making these smart moves, you’ll not only save money but also create a happier, more efficient team.

Need help bringing powerful AI-driven technology solutions to your restaurant? We’d love to help. When every hour of every shift matters, Fourth helps you conquer the day.