Learn how server compensation changes can promote restaurant employee retention

50% of restaurant operators in the full-service, quick-service and fast-casual restaurant segments said they expect recruiting and retaining employees to be their top challenge in 2022, according to a recent restaurant industry survey by the National Restaurant Association.

Due to labor shortages and an economy hit hard by inflation, the task of hiring and retaining staff is presenting restaurant operators with unprecedented challenges in 2022. One way to ensure restaurant employee retention and reduce turnover is by offering servers a pay structure and benefits package that can attract and keep top talent, but what does that look like against a backdrop of high inflation?

Restaurant staffing shortage: How'd we get here?

The pandemic upended the economy in lots of ways — from temporarily shutting down entire industries to disrupting supply chains to offering workers plenty of reasons to quit. In May of 2022 alone, 4.3 million Americans quit their jobs. And the hospitality industry still hasn't recovered from 2019 losses, with leisure and hospitality employment at 7.9% below pre-pandemic levels.

With 1.3 million of these jobs still lost, according to the U.S. Bureau of Labor Statistics most recent job report, the situation has the industry "desperately seeking to fill jobs" according to the U.S. Travel Association executive vice president of public affairs and policy, Tori Emerson Barnes.

Throw record inflation into the mix for another curveball. While restaurant owners are looking at paying more for food and services, prospective restaurant workers are looking to get paid more to balance the huge increases in monthly personal costs for groceries, gas and other essential items. In June 2022, the inflation rate was 9.1%, a four-decade high.

How to pay servers and other restaurant workers for retention. Know the minimum.

First, you'll want to make sure you're abiding by any federal, state or local laws around properly paying your employees, including any overtime requirements. The U.S. Department of Labor's Wages and Fair Labor Standards Act is where you'll get up-to-date info on national minimum wage standards—currently $7.25 an hour with time and a half paid when an employee works for more than 40 hours in a week. Most states and some cities and municipalities have their own minimum wage standards and overtime laws, which are higher than the federal ones.

Then, assuming your servers are tipped, you'll need to dive into the rules around tipped employees, which differ from non-tipped ones and vary by state and municipality. (Most servers receive tips and while there was a recent, small no-tipping trend at certain usually higher-end restaurants, it's the exception rather than the norm.)

The Department of Labor has an up-to-date list of state rules around tipped employees, for reference. And you'll want to make sure you understand the rules around the tip credit, which lets you pay tipped employees less than the minimum wage as long as that money is recouped by the employee in tips to equal or exceed the federal, state or local minimum wage you need to abide by. 

Pay more than the minimum.

It should come as no surprise that if you offer more than the hourly minimum wage in your area, your restaurant will look more attractive to prospective employees. With the continued shortage of workers across industries and inflation pressures, employers are having to offer more money to attract a shrinking pool of workers. As a benchmark, the U.S. Bureau of Labor Statistics found the median waiter pay was $26,000 per year or $12.50 per hour in 2021, but that number will differ dramatically depending on how much a person works, what state they work in, and their tips.

Certainly pay is trending up, not down. Average hourly earnings have risen by 5.1% in the year through June, according to The New York Times. Businesses like Starbucks are announcing across-the-board wage hikes. And throughout the pandemic, restaurant chains have raised wages or offered bonuses in an attempt to attract and retain employees.

Simply put, the absolute minimum may not be enough to attract employees in this time of a restaurant labor shortage. But do be careful about paying incoming hires more than current ones, as the discrepancy just might convince your current employees they need to find a better paying job, which will land you right back where you started — looking for new employees in the midst of a restaurant staffing shortage.

Have a retention plan in place.

The work doesn't stop once you've hired an employee. You need to be transparent about both your pay policies and your raise policies for optimal restaurant employee retention. Make sure employees know that you have a wage increase plan in place, whether it's based on months of employment, performance, inflation rate or something else. Bonus programs can be effective restaurant employee tools too.

You want to make sure your restaurant staff won't be tempted to job hunt once they're hired. And you won't be alone, according to that state-of-the-industry report from the National Restaurant Association, which found that 75% of restaurant operators report planning to devote more resources to recruiting and retaining employees. Keep in mind you're operating in an environment where in March 2022, 810,000 hotel and restaurant workers left their jobs, for a quit rate of 6.1% — a higher rate than in any other industry.

And it's not just about competing for the few good workers in a tight labor market. Losing an employee and having to rehire costs money—and every penny counts in this inflation-fueled world. One report found that it costs around $1,932 per FOH hourly employee, $10,410 per manager (excluding GMs) and $13,946 per manager (including GMs) to replace a restaurant employee. That's a lot of money off your bottom line every time you have to find a new server.

Offer benefits beyond a paycheck.

For starters, pay your employees on time, with clear pay stubs, and in a way that works for them (some may prefer checks, others direct deposit). Make sure compensation is clearly outlined, especially for tipped employees. Other low- or no-cost benefits employees will appreciate include: offering flexible scheduling that works for your employees (keep in mind some employees may prefer a more set schedule), offering an easy-to-use time-off-request system, and offering unpaid time off when needed.

Some benefits may cost you but can help you retain quality employees in this restaurant labor shortage era. These benefits include offering healthcare, 401K, additional paid time off and paid family leave. And let’s not forget the importance of making your employees’ job as easy as possible with sophisticated tools that require little training, such as an intuitive hand-held point of sale system.

Of course, both wages and inflation are big cost headaches for restaurants. You'll need to keep an eye on all your expenses, especially if you need to boost server pay to find and retain workers. That means fighting inflation through good inventory management, reducing food costs, reducing food waste, fine-tuning your menu for cost (including restaurant menu engineering) and cutting costs in areas beyond food, such as takeout containers and utilities.