How to See Shortages as a Restaurant Staff Retention and Churn Crisis

Understaffing, closing early, opening later, slower service, employee burnout — restaurants are feeling the pinch with the ongoing labor struggles.

The industry is still picking up the pieces after the fallout during COVID, but staffing struggles were present long before the global pandemic. Toast was writing about it as far back as 2018!

The issue is rightly attributed to a shortage of restaurant labor, but restaurant operators have little control over the national or even local labor force. However, they can control employee retention.

Digging into labor data, there’s a clear secondary crisis of astronomical employee churn within the restaurant industry. Restaurant operators may be able to soften the blow of the larger labor shortage by combating churn and encouraging retention within their existing employee base.

Read on to learn more about what the data shows and how restaurant operators can  encourage retention.

Key Takeaways

• 11K+ more restaurants and 700K fewer industry workers than pre-pandemic

• Average cost to hire a new restaurant employee is $2,000

• 52 percent of hospitality employers increased wages two to three times in 2021

Demand outpaces supply for restaurant labor

Restaurant employment is growing, but it hasn’t kept up with restaurant location growth.

Restaurant employment increased in March 2022, with a gain of 61,000 jobs in food services and drinking places — over 14 percent of the 413,000 total US jobs added in March, all according to the Bureau of Labor Statistics (BLS).

March 2022 continues a 15-month trend of positive restaurant job growth. It’s the smallest single-month increase over the past 15 months though, indicating restaurant job growth could be slowing.

“Eating and drinking places remain 820,000 jobs – or 6.6 percent – below their pre-pandemic staffing levels,” writes Bruce Grindy, chief economist for the National Restaurant Association.

A sub-7 percent gap in pre-pandemic labor supply doesn’t seem like much — until you remember where restaurant labor was at pre-pandemic.

According to BLS data, the restaurant labor force reached 12.2 million at the end of Q4 2019. The total number of food services and drinking establishments peaked in Q4 2019 with 660,352 total locations.

BLS data shows total restaurant employees sitting at 11.5 million for March 2022 — and yet the number of existing restaurants have jump up to 672,107 as of Q3 2021. 

There’s now nearly 12,000 more restaurants than pre-pandemic looking to pull from a labor force that’s 700,000 workers smaller than pre-pandemic. Yikes.

Further amplifying the issue is the national unemployment rate sitting at 3.6 percent — just one-tenth above the 20 years lows of February 2020. Fewer people out of work means stiffer competition and larger incentivization to attract and retain employees.

See through the shortage to the crisis of employee churn

The Job Openings and Labor Turnover data from the BLS spotlights the perpetual churn within the restaurant industry.

Over one million restaurant jobs have been filled in the past year. About 900,000 restaurant job separations have occurred — this includes layoffs, quits, and other terminations.

“The high number of separations does not mean that a corresponding number of people are leaving the industry each month,” Grindy says of the data. “If only separations were elevated, that would be the case. The combination of elevated hires and separations means a sizable number of employees are leaving a job at one restaurant for a job at another restaurant.”

Separation rates for restaurant employees understandably soared in 2020 to 130 percent. But prior to 2020, separation rates in the industry were high and getting higher:

• 2017 - 72.4 separation rate
• 2018 - 75.1 separation rate
• 2019 - 79.1 separation rate

Our restaurant hiring and management guide reports that the average cost to hire a new employee can be up to $2,000. So even if you’re operating at the pre-COVID industry turnover rate average of 79 percent, that means a 20-employee operation could spend up to $32,000 just to maintain their 20-employee staff level over the course of the year.

Separation rates for 2021 are still elevated at 86.3 percent, but they’re falling back in line with rates prior to the pandemic.

Data from Toast partner, 7Shifts, supports the ongoing struggles with churn. They report that “Trainee” and “Training” roles are up 130 percent and 79 percent compared to last year.

This is all in line with the National Restaurant Association’s 2022 State of the Restaurant Industry report. It states that about half of restaurant operators in full service, quick service, and fast-casual segments expect recruiting and retaining employees to be the top challenge in 2022.

Combatting restaurant churn starts by controlling your costs

Not every restaurant employee churns due to compensation, but compensation is a great place to start your retention journey.

According to research from hospitality HR platform harri, 52 percent of hospitality employers provided two to three wage increases in 2021 (exclusive of any minimum wage increases.) And they had good reason to increase, as the same research shows that a majority of employees planned to move to higher paying jobs last year.

This understandably sets up a serious costing pinch for restaurants as ingredient prices remain elevated if not continue rising. The pinch is on restaurant prime costs, which is the combination of cost of goods sold (COGS) and labor.

We’ve written extensively about taking control of food costs with xtraCHEF by Toast — using restaurant-specific invoice automation and recipe management to calculate plate costs and manage your COGS. 

Labor costs are the other half of the prime cost equation. More effectively managing your labor costs can unlock additional resources for strategic raises or bonuses, encouraging retention.

How can technology help

Lowering your restaurant labor costs starts with tracking them. You and your managers don’t have time to manually calculate individual payrolls — and you definitely don’t have time to add all that up to get your cumulative labor costs.

Scheduling, payroll, and team management tools are all essential here. Software like Scheduling, powered by Sling, can help you calculate, automate, and communicate staff schedules and weekly labor costs as a percentage of sales. 

Toast’s Payroll & Team Management also is useful. It provides accurate, automated, and one-time payments for salaried and hourly employees, factoring in taxes, tips, and more. 

Technology isn’t limited to lowering costs to boost compensation. It can play a critical role with ongoing employee retention as well as attracting new hires in the first place.

These same Toast tools can help you to provide a quicker, more seamless digital onboarding experience for new employees — allowing them to fill in their paperwork and get up to speed on their own preferred devices, saving time for them and your managers.

On top of that, savvy industry veterans want to work with systems that can help them better help customers, which in turn helps them boost their own earnings.

One such example is the technology that unlocks the New Steps of Service. This refreshed service model combines traditional touch points of hospitality with the efficiencies of technology. It streamlines the flow of service by empowering your guests to order and pay whenever they like, and it keeps the orders coming to increase average check sizes. 

When powered by Toast, the New Steps of Service has helped restaurants:

• Reduce table turn times by ~5 - 15 minutes

• Increase average check size by 15 percent

• Boost staff wages by 20 - 30 percent

Of course, these testimonials above reflect the experience of the merchant and results may vary. But our handy New Steps of Service ROI Calculator can help you explore the potential impacts on your operation.

While the New Steps of Service can help to optimize on the clock, instant access to earned pay is another new technology that’s designed to help staff when they’re off the clock. 

For example, Toast Pay Card and PayOut can empower your staff to take control of their finances and say goodbye to waiting between paydays with instant access to a portion of their tips and wages as soon as their shift ends. (1,2)

Restaurants that offer early access to earned pay can increase their employees’ financial stability, boost engagement, and improve retention.

Where do you go from here?

The national labor shortage shows no signs of slowing down — and it may continue to acutely impact restaurants if new restaurant openings keep outpacing labor growth. 

This puts even greater emphasis on taking control of costs to remain competitive with compensation. Luckily, restaurant operators are a resilient bunch. Combining the right hiring practices with the right technology can help bolster that resilience and decrease employee churn rates.

(1) Access is typically available instantly after the employee's shift; however, if restaurants tip pool using Toast Tips Manager, Toast PayOuts of tips are available after the tip pool is approved and sent to Toast Payroll, typically the next calendar day. 

(2) Toast PayOuts may be are limited to a portion of pay to help account for estimated taxes, withholdings, and deductions. Tip PayOuts are not available at restaurants that tip pool without using Toast Tips Manager. Employees must receive wages via their Toast Pay Card in order to access Toast PayOuts. Tips will be paid to employees on their Toast Pay Card as though they were receiving them in cash. Wages will be advanced by employers during the pay period and deducted from their total wages paid to them on payday.

Toast Pay Cards are issued by Sutton Bank, Member FDIC, pursuant to license by Mastercard®. Mastercard and the circles design are registered trademarks of Mastercard International Incorporated. Toast PayOuts are funded by a 0% line of credit issued to employers by Toast, Inc. or WebBank, as set forth in the employer's Credit Agreement. Toast and WebBank each reserve the right to change or discontinue this program at any time. Toast Pay Card and PayOut is not available in all jurisdictions and is available to Toast Payroll customers only.