Restaurant minimum wages are increasing in most US states, and with it, payroll costs. Moreover, since the pandemic, workers have increasingly preferred restaurants that offer a better work-life balance, which has led to a higher turnover rate. Add to it the increasing ingredient costs and immense competition, which is making it tough for restaurants to boost profits.

All these factors affect the restaurant payroll percentage. Let’s discuss what a restaurant payroll percentage is and why improving it means more revenue.      

What is the Restaurant Payroll Percentage?

A restaurant payroll percentage is the total payroll costs incurred by a restaurant as a factor of the total revenue earned. It tells whether you are making sales according to the workforce you have employed. Restaurant payroll percentage can also be a measure of employee productivity and an indicator to rethink growth strategies.  

Components of Restaurant Payroll

Restaurant payroll does not consist only of the wages you pay the employees. It also includes other parameters, such as -

·     Overtime - Compensation paid to workers for the additional hours worked

·     Taxes on Payroll - The Employer must pay taxes, such as FICA (Federal Insurance Contributions Act) and FUTA (Federal Unemployment Tax Act).

·     Bonuses - Paid to employees for special occasions and milestones

·     Health Insurance -Insurance benefits provided by the restaurant owner  

·     Miscellaneous Costs - Other indirect payroll costs, such as employee training and onboarding, meals, etc.

How to Calculate Your Restaurant Payroll Percentage?

The restaurant payroll percentage depends on two factors: Payroll costs and revenue earned. It is calculated by -

Restaurant Payroll Percentage = (Total Payroll Cost /Total Gross Revenue) x 100      

[Note: The duration for both payroll costs and revenue must be the same.]

For instance, let’s say the total annual payroll cost for your restaurant is $250,000, and the annual gross revenue is $1,250,000. The restaurant payroll percentage will be: (250,000 / 1,250,000) x 100 = 20%.

Hence, it is vital to evaluate restaurant payroll costs accurately to calculate the exact payroll percentage.  

Factors That Affect Restaurant Payroll Percentage

Here are some factors that affect the restaurant payroll percentage.

Increasing Minimum Wages

The minimum labor wages are rising in the US. On January 1st of this year, the US Department of State increased the minimum wages for 21 states. For instance, minimum wages for New York state increased by 0.50% to $16.50. These wages significantly increase labor costs, thereby increasing payroll percentage.    

Business Model and Service Type

Are you a Quick Service Restaurant (QSR) or a fine dining restaurant? The restaurant payroll percentage depends mainly on your restaurant type. It is because the restaurant model determines the number of workers you need to deploy, which determines payroll costs. For instance, a fine-dining restaurant will employ more people (hosts, servers, etc.) than a QSR. Moreover, if you implement processes like curbside pickup, you will logically have to hire fewer workers.      

Guest Experience

By increasing the guest experience, restaurants can increase sales, which in turn decreases the restaurant payroll percentage. Hence, you must try to increase guest retention by offering them a personalized and seamless experience. Tools and processes, such as handheld POS, self-order kiosks, restaurant webstore, and loyalty programs, can boost guest satisfaction.    

Employee Turnover

According to the US Department of Labor, the average turnover in the hospitality industry has increased by 9.5% annually since May 2024. Generally, restaurants have one of the highest turnover rates among all industries. New staff typically takes time to reach full productivity, which can drag down efficiency and inflate labor percentages.    

Geographical Location

The standard of living and market competition vary across different parts of the USA, which affects revenue. Furthermore, payroll factors, like minimum wages and taxes, are also different in different regions.

Minimizing Restaurant Payroll Percentage

Let’s check out some steps you can take to reduce the restaurant payroll percentage.

Implement Smarter Scheduling

Reducing payroll percentage depends on how efficiently employee shifts are managed to minimize labor costs. However, you must also keep in mind that there should be no labor shortage during peak hours.

Smart restaurant scheduling solutions, such as NOVA, automate workforce scheduling by analyzing historical data and assigning the right number of workers during peak and off-peak hours. Smart scheduling minimizes unplanned overtime and idle time, reducing payroll percentage.  

Train Your Team

If you get the best out of your team, the restaurant percentage will be reduced automatically. Therefore, it is lucrative for you to prioritize employee training at the restaurant. Ensure that the training is not a one-time thing but a comprehensive plan for constant improvement.  

Moreover, you must cross-train employees to handle multiple roles in the restaurant.  For example, a server can also help with bussing tables during a rush, or a line cook can assist with prep during off-peak hours. It helps not only you in reducing the headcount but also the employees to earn more.  

Increase Revenue

If you are unable to control payroll costs, boosting sales will get your restaurant’s payroll percentage down. There are several ways to increase your restaurant’s revenue, like improving guest experience, ensuring faster turns, optimizing menu pricing, upselling, using smart customer loyalty programs, and personalized email campaigns.    

Embracing Advanced Tools

Adopting advanced restaurant management software solutions can help you reduce the restaurant payroll percentage. These tools utilize Artificial Intelligence and Machine Learning to predict workforce requirements, footfall patterns, customer preferences, guest behavior, and more. It enables restaurant owners to increase revenues and reduce labor costs.  

Reduce Turnover Rate

A significant amount of time and resources is wasted on employee hiring and training, which increases payroll costs. Moreover, the newly hired personnel will always be less productive than the experienced ones.You can ensure employee retention by implementing an employee incentive program to reward them for a job well done. You can also plan employee-specific events and invest in employee upskilling.

Optimizing RestaurantPayroll Percentage with NOVA

NOVA minimizes the restaurant payroll percentage by offering a comprehensive restaurant management and POS solution to minimize labor costs and boost revenues. With NOVA, you can:

Enhance Guest Experience

NOVA’s AI-native features ensure a delightful guest experience. Our handled POS optimizes tableside ordering by reducing the wait time, increasing table turns, and boosting guest satisfaction. Moreover, our Voice AI, integrated with LLMs and computer vision, gives customers a personalized experience in a human-like interaction. NOVA also offers integrated AI-powered loyalty programs to encourage guest loyalty.        

Boost Revenues with AI-native Marketing

NOVA enables you to automate AI-powered marketing campaigns based on deep insights, such as customer preferences, best-selling items, and real-time inventory data. GetAI-created templates and run them simultaneously on multiple social platforms,SMSs, and emails, in a couple of steps. Launch the right campaigns at the righttime with the right information to boost sales.    

Manage Workforce with Ease

With NOVA, payroll management is a cakewalk. NOVA enables you to track employee time, manage breaks and overtime, and assign shifts on a single platform. Optimize employee scheduling and significantly reduce labor costs.  

Onboard Employee Instantly

The average age of a restaurant front-of-house (FoH) workforce is under 25. Keeping this in mind, NOVA’s user interface is designed on an image-first principle, which is super easy and interactive to operate. Hence, any new worker can start working instantly, reducing training costs and time.    

Encourage Upselling

Upselling cannot be successful if servers don’t have all the relevant data, including customerpreferences, inventory status, and discount information on one platform. NOVA enables real-time sync of all FoH and BoH data on its handheld POS. It enables servers to offer customers the right items, modifiers, add-ons, and discounts, right at their table.  

Easy Payroll Calculations

NOVA facilitates accurate payroll calculations by offering[AP1]  a unified platform for managing tips, tracking time, calculating overtime, tax compliance, and more. Pay employees easily via direct-to-bank transfers.  

One-stop Solution

NOVA is a comprehensive restaurant management and POS platform that integrates all FoH and BoH functions, offering granular reports. Manage menus, automate scheduling, launch marketing campaigns, streamline orders, track inventory, and customize menu and pricing - all on one platform.  

Conclusion

Maintaining and reducing the restaurant payroll percentage is critical to survive in the competitive hospitality industry. Hence, you must create effective strategies to reduce payroll costs andincrease revenues. However, calculating and optimizing payroll percentage is not possible without the right restaurant management platform.  

NOVA can help you easily reduce the restaurant payroll percentage. It is an AI-native platform that automates workforce scheduling, marketing campaigns, menu pricing, and more. Moreover, it enhances sales by increasing the turnover rate, ensuring guest satisfaction, and optimizing inventory management.