How to Reduce Labour Costs for Your Hospitality Business

The coronavirus pandemic has severely hit the service sector and the hospitality industry in particular, causing unimaginable disruption to jobs, with millions...

Indeed Flex

16 September 2021

6 min read

The coronavirus pandemic has severely hit the service sector and the hospitality industry in particular, causing unimaginable disruption to jobs, with millions of workers furloughed or even laid off. Now, with the hospitality sector bouncing back and the furlough scheme being withdrawn, it’s more important than ever for hospitality businesses to manage their resources as carefully as possible.

But how can the hospitality industry reduce labour costs without seeing your service levels suffer? Join us as we dish up three best practice strategies to help you reduce your labour costs across multiple locations while continuing to deliver an outstanding customer experience. 

What Are Labour Costs and How Are They Calculated? 

Your labour cost is the percentage of your hotel’s or restaurant’s revenue that goes towards hiring, paying and maintaining your employees. The ideal percentage will vary depending on what your business does.  As a rough guide, restaurant labour costs of around 35% are a widely accepted target – however, in fast food chains with no table service, this figure can fall to 25%. In hotels, meanwhile, labour costs are the largest single operating expense, typically reaching just over 40%. Calculating your labour cost is simple – all you need to do is add together every expense related to the employment of your staff. This includes wages, overtime and your National Health Insurance contributions to training, recruitment costs, uniforms and payroll administration. Once you have your total cost of labour, divide it by your revenue and multiply that figure by 100. 

Here’s the formula:  Total cost of labour (£) / Revenue (£) x 100

Why Is Keeping Labour Costs Down a Priority for the Hospitality Industry? 

More than 30% of hospitality workers across the UK are thought to have come from Europe pre-Brexit, a figure which rises to nearly 50% in London. With many of those staff returning home during the Covid-19 pandemic and up to a quarter of those deciding not to return to the UK, the hospitality industry is consequently facing a staffing crisis.  As demand for hospitality workers has increased, so have wages, which are soaring for front of house staff, chefs and restaurant managers. This means that hospitality businesses need to work harder than ever to keep the other costs involved in hiring and maintaining their staff to a minimum. Lowering these overheads is even more important as the industry remains plagued by Covid uncertainty and customer no-shows, with revenues being dented by the one-in-seven post-lockdown bookings who are failing to show up. 

Three Strategies to Reduce Labour Costs

Keep on Top of Your Workforce

The thoughtful use of sector-specific technology can help you increase efficiency, save time and reduce restaurant and hotel labour costs while providing a positive experience for your customers. Indeed Flex is workforce management software that helps to solve the problems faced specifically by hospitality businesses. 

It gives hotels and restaurants access to a pool of 44,000 flexible workers to reduce your agency costs and allow you to scale your workforce quickly in line with demand. Indeed Flex’s smart matching algorithm saves you the job of flicking through flexers’ profiles to find suitable staff. Instead, it does the hard work for you by finding workers who are the best fit for your business, from chefs, waiting staff and baristas to event staff, hotel workers and more. 

You simply clock Flexers in and out using the in-app QR scanner and approve the digital timesheet after their shift. You can then build a pool of your favourite flexible workers that you can work with time and time again without having to pay expensive hourly agency rates. 

As well as helping you find motivated and experienced temporary workers quickly and easily, Indeed Flex also automates another labour cost that you can do without, as we do all of the HR compliance and payroll reporting for you.

Harness the Strengths of Your Staff 

When you make labour cost control a primary goal of your hospitality business, you’ll inevitably learn more about the strengths and weaknesses of your staff.  For instance, you’ll learn which servers work quickly and efficiently and can masterfully manage the busiest nights of the week.

You’ll also identify the servers who may be a little slower but give your customers some extra attention and have a knack for enticing them to order extra dishes and drinks. These individuals would be perfect for quieter days of the week when maximising revenue is your goal. By recognising their strengths and using them to your advantage, you can schedule your staff accordingly to optimise your labour costs, increase your revenues and make your employees feel more valued. 

Make Sure Everyone is on the Same Page

Shift management also has an important part to play in reducing your labour costs, too. A quick meeting before and after every shift gives you the chance to listen to and motivate your workers. They can discuss any obstacles that could prevent them from working at their most efficient and you can make their role clear and explain what is expected of them. 

During the shift, your hotel and restaurant managers should be asking themselves whether all of the staff are fully utilised and whether there are systems in place that could be improved. For example:

  • Are there more effective ways of doing things?
  • Could a task that’s being done by two members of staff be completed just as easily by one?
  • Are there any telltale signs of too many staff, such as two people cleaning a fridge, or employees taking breaks during service?

If you do notice inefficiencies, write a list of the specific tasks and duties that each employee is responsible for on a daily, weekly and monthly basis. This will reduce the amount of ‘filling time’ that takes place and help you to trim down your labour costs.

The right tools, the right people, the right management 

If you’re wondering how to reduce your labour costs in the hospitality industry, then the answer is threefold. 

First, you need to invest in the right tools. In turn, a software solution like Indeed Flex will help you to identify and hire the right people. Then, it’s your job to manage them effectively by harnessing their strengths, scheduling them appropriately and giving them clear tasks to complete.  

Demo Indeed Flex today to see how our award-winning hospitality staffing platform can help you scale your workforce in line with demand and reduce your labour costs.