How do you calculate labor costs in a restaurant?

In the restaurant business, smart cost management is essential to success. And when you think of costs, you think of labor! So let's delve into the subject and discover together how to evaluate the time needed to work, the costs linked to staff in fast food restaurants, and above all, how to save on these expenses.

So, are you ready to control your expenses and boost your restaurant's profitability? 

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What are the personnel costs in fast food?

In the fast-food sector, staff costs can represent a significant proportion of a restaurant's total expenditure. Here are the main points to consider:

• Wages and salaries: Salaries paid to employees, whether waiters, cooks, cashiers or managers, account for the bulk of labor costs. 
• Social security charges: In addition to gross wages, there are social security charges, which include employer contributions for social insurance, pensions, health, unemployment, etc. These charges are generally calculated as a percentage of wages. These charges are generally calculated as a percentage of salaries.
• Bonuses and benefits: Some fast-food outlets offer bonuses or benefits to their employees, such as free meals, performance bonuses or product discounts.
• Training: Investing in staff training may be an additional expense, but it's an essential investment in improving skills and service quality.
• Absences and paid leave: Absences due to illness or paid leave can entail additional costs, as it may be necessary to temporarily recruit additional staff to fill these absences.
• Uniforms and equipment
• Schedule management: Optimizing work schedules to ensure adequate coverage during busy periods may require the use of schedule management software, entailing additional costs.
• Recruitment costs: Hiring new employees may entail recruitment costs, such as job advertisements, recruitment agency fees or interview costs.

👉 Find out more: 9 tips for finding restaurant staff

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Optimizing payroll

How to calculate your workforce?

Here's how to calculate your restaurant's workforce:

• Identify the number of employees: Start by listing all the employees who work in your restaurant, including waiters, cooks, cashiers, managers and so on.
• Determine hours worked: For each employee, record the number of hours worked over a given period, such as a week or a month. Be sure to include all actual hours worked, including overtime, breaks and days off.
• Calculate individual wage costs: Multiply the number of hours worked by each employee's hourly rate to obtain individual wage costs.
• Calculate total payroll: Add up all individual payroll costs to obtain the total payroll for your facility over the chosen period.
• Add social security charges: Don't forget to include employer social security charges in the calculation. These include contributions for social insurance, pensions, health, unemployment, etc.
• Calculate total labor costs: By adding payroll costs and social security charges, you obtain total labor costs for the period in question.

Here's the formula for calculating total labor costs:

Total labor costs = Payroll + Social security charges

Regular monitoring of labor costs will give you a clear picture of your personnel-related expenses. It will help you better manage your human resources, make strategic decisions to optimize your costs and improve your restaurant's profitability.

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Personnel ratio calculation

The personnel ratio is an essential indicator for measuring the ratio of payroll to sales excluding VAT over a given period.

Here's the formula to apply: Staff ratio= Payroll / Sales excluding VAT x 100.

In catering, this ratio is generally between 30% and 40%, although it can vary depending on the type of restaurant. For fast-food restaurants, for example, the ratio can fall to around 28%, while for gourmet establishments it can exceed 45%.

Let's imagine a fast-food restaurant with sales of 20,000 euros excluding VAT in a given month. During this period, the total payroll amounted to 5,600 euros: 

Staff ratio = (5,600 euros / 20,000 euros) x 100 Staff ratio = 0.28 x 100 Staff ratio = 28%.

👉 To find out more: Margin and Profitability in the Foodservice Industry

The importance of EBITDA and GOI

It's also essential that you know how to calculate your EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) and EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization): 

Gross operating income (GOI) = sales - cost of materials consumed - personnel expenses - overheads

• It can be operating income before tax
• Or operating income after tax or net operating income

And to find out about your facility's cash flow: 

EBITDA ( Earnings Before Interest, Taxes, Depreciation and Amortization) = Sales - Purchases - Third-party consumption + Operating subsidies - Personnel expenses - Taxes.

👉 Pour aller plus: Discover our 8 tips to ensure your restaurant's profitability

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How to optimize labor costs? 

Tip 1: Evaluate a restaurant's main expense items

To begin with, identify the main personnel -related expenses in your restaurant. Analyze salaries, payroll taxes, potential bonuses, employee benefits and training costs. By evaluating these expenses, you'll be able to better target areas where savings can be made.

Tip 2: Reduce a restaurant's fixed costs

First, our advice is to look for ways to optimize working hours around busy periods, so as not to overpay staff when business is slow. Consider also the possibility of setting up in-house training programs to develop the skills of existing employees, which can be more cost-effective than hiring new ones.

Another approach to optimizing staff costs is to reduce your restaurant's fixed costs. Fixed costs include expenses such as rent, service charges, electricity and maintenance, among others. By reducing these costs, you can free up financial resources to invest in staff, without necessarily increasing sales.

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Did you like these tips? Don't hesitate to consult our other articles on our blog to help you develop your business!

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