Employee Retention in the Restaurant Industry
Strategies to Reduce Turnover Costs and Keep Your Valuable Employees
Employee expenses are on the rise. Coupled with the declining sales growth across the restaurant industry, this is something many restaurant operators simply cannot afford. However, there is one thing more costly than employee expenses. Workforce Intelligence (formerly People Report) data reports that the cost of turnover is now over $2,000 for hourly employees and over $15,000 for management employees.
It is becoming increasingly difficult for restaurants to hold onto their valuable employees. 40 percent of hourly employees terminate within the first 90 days of their employment, and approximately 35 percent of managers terminate within the first year. So, what’s the secret to making them stay?
Why restaurants need to re-evaluate their benefit offerings
One cannot overstate how important job benefits are becoming to restaurant employees. The workplace has changed dramatically over the past two decades, and the modern worker has a complexity of different needs than workers of the past. With turnover steadily rising, companies must get more creative in identifying what their employees need the most.
One of the biggest necessities for low-wage employees today is healthcare. Unfortunately, according to the 2017 Corporate Compensation and Benefits Survey (CCBS) produced by Workforce Intelligence (formerly People Report), the cost of healthcare plans offered in the restaurant industry is also rising. Participation in PPO plans has decreased since 2014 as employees switch to the more cost-efficient HMO plans. The costs paid by employees for PPO plans have increased slightly. In comparison, the average monthly cost for “employee only” coverage for HMO plans has decreased slightly from 2014.
Employees are seeing the biggest disadvantage in mounting out-of-pocket expenses. Even for HMO plans, individual deductibles and out-of-pocket maximum totals have increased over the past three years. Although the actual cost of plans has only changed slightly, coverage is not what it used to be.
While healthcare remains a top concern for most low-wage workers, other benefit offerings still hold a great deal of weight. Over the past few years, several companies have touted education assistance as an accessible offer for their employees. For example, Starbucks launched its Pathway to Admission program earlier this year to offer full tuition coverage for an online bachelor’s degree from Arizona State University. Additionally, startup Lavoro Education is partnering with educators and employers to create low or no-tuition pathways to a college education.
According to the CCBS results, though, some companies now are dialing back on traditional benefits and opting for newer trends such as elder care, paid parental leave, and professional development.
Paid Parental Leave
Paid parental leave has stepped into the spotlight as an essential employee benefit. Currently, only 48 percent of workers in the service industry receive paid sick leave, according to the U.S. Labor Department. Even fewer receive paid parental leave. However, several restaurant companies have been quick to jump on board the parental leave wagon and change the direction of the industry.
Last year, Union Square Hospitality Group announced that it was extending eight weeks of paid parental leave to all workers at their restaurants. This included four weeks at full pay and four weeks at 60 percent pay. Likewise, Yum! Brands began offering six weeks of fully paid parental leave to all fathers, partners, adoptive and foster parents as well as 18 weeks of fully paid maternity leave to birth mothers.
Both of these announcements were greeted with positive reception from the public, as these companies represent the turning tide of employee engagement and caring for their workers. Erin Moran, chief culture officer of Union Square Hospitality Group, explained that paid parental leave is “the continuation of that emphasis of being a place where people can grow their careers. We realize people’s lives evolve, and we want people to have full lives both inside and outside of work.”
Professional development has also begun to emerge as a more desirable benefit. Fortunately, professional development in the workplace is rewarding to employers and employees alike. And, it turns out there are several development resources that operators have at their disposal.
DiscoverLink, for example, is a learning management system designed for the hospitality industry. It incorporates crucial training and development classes in an e-learning platform to ensure all employees have the expertise they need to succeed. Likewise, the National Restaurant Association offers several professional development opportunities. The ServSafe program for food service employees “leads the way in providing comprehensive educational materials to the restaurant industry through face-to-face and online instruction.”
Investing resources into properly training and developing employees has its rewards for operators as well. Workforce Intelligence (formerly People Report) research has revealed that management turnover decreases in restaurants where trainers spend at least 1 percent or more of training time on supervisory skills. Similarly, companies that offer four or more hours of orientation to new employees report almost 10 percent lower hourly turnover than those who offer less than four hours.
“Work/life balance” is an elusive concept in most workplaces, but particularly so in the restaurant industry. The demands of feeding hoards of guests often require employees to work around the clock, day in and day out. This results in job burnout decreased productivity, and disengagement with work. Over one-third of participants in an engagement study reported that an overload of work responsibilities resulted in sleep loss and severe reduction of energy levels, which led to them taking more sick days and performing sluggishly at work.
Thus, operators are finding that if they want to hold onto their star employees and maintain optimal efficiency, they need to give their employees time to rest and recuperate. However, CCBS results show that while corporate employees received an average of 10 holidays in 2016, hourly employees only received three. This means that frontline employees are not receiving some of the quality rest time that they need.
According to Project: Time Off, “Vacation is not just a tool for avoiding burnout; promoting time off makes it easier to ask employees to log extra hours at critical moments.” Additionally, 67 percent of HR professionals indicated that proper use of time off would lead to increased employee engagement at work.
Don’t Forget About Compensation
As much as employees care about their benefits packages, hard cash is still just as important to them. One of the top reasons for voluntary termination in the restaurant industry today is the opportunity for higher compensation elsewhere. Considering the recent dwindling of bonus offerings in restaurants, it’s not surprising that management turnover levels are still increasing. Multi-unit managers, in particular, are taking the largest hit to their bonuses; over the past few years, both the target bonus and actual bonus payout have decreased dramatically for this group of managers.
Similarly, although target bonuses have remained fairly consistent for general managers since 2014, they are seeing a much smaller actual bonus payout, especially in comparison with corporate executives and directors.
Long-Term Incentive Programs
Additionally, long-term incentive programs have declined significantly in use. When viewing long-term incentive offerings for restaurant management employees today compared to 2014, usage has decreased for incentive stock options, nonqualified stock options, and performance shares. Furthermore, long-term incentive programs for general managers have declined by 11 percent.
Finally, in perspective of all of this, restaurants are slowly seeing a gradual increase in state-mandated minimum wages. Activists have been prolific in fighting for an increase in base pay for hourly workers, and are finally starting to see some movement, particularly in larger cities and states. For example, Seattle began raising its wages in 2015, first to $10 an hour then to $13. By 2018, the city plans to have a mandated minimum wage of $15 per hour. This has been met with both praise and criticism from many in the industry. However, operators will likely feel increased pressure to raise wages as unemployment drops and other industries begin offering more competitive pay.
Top Performing Companies
Understanding the latest trends is great, but how do health benefits play into the operational success of a restaurant? Analysis from Black Box Intelligence (formerly TDn2K) shows that companies that pay 70 percent or more of their employees’ health benefit costs are performing at 1.5 percent higher in comp sales. Likewise, top-performing restaurants based on sales offer 15 percent higher salaries and 11 percent higher target bonuses to their general managers compared to the companies with the worst sales. This demonstrates a clear correlation between taking care of your employees and driving business results for your restaurant.