How to Budget for Restaurant Employee Benefits

The cost of healthcare is a top concern in the U.S. Employer health insurance is the main source of health coverage in the U.S. It covers 178 million people, including 63% of working adults between 19 and 64 years of age. Unfortunately, that figure is much lower for restaurant workers: a survey by Restaurant Opportunities Centers United found that almost nine out of ten people who work in the restaurant industry lack paid sick days (87.7%) and health insurance from their employer (89.7%). The study added, “As a result of the fact that those who work in the industry cannot afford to take care of themselves or stay home when they are sick, two-thirds of them (63.6%) report working sick, unnecessarily placing co-workers and diners at risk.”

As workers across many industries lay on the pressure for employers and policymakers to reform a healthcare system that’s literally making people sick, some businesses have created employee benefit programs that provide quality healthcare options. These forward-thinking leaders are setting a new standard for a healthy, sustainable restaurant workforce. Read on to learn about the restaurateurs who are raising the bar, by offering benefits that turn restaurant work into a viable, long-term career path - while keeping within their restaurant budget.

Employee Benefits are a Necessity

The restaurant industry has had a staff retention problem. COVID made things much more difficult. The closures that happened resulted in 6 million workers losing their jobs. And the ones left behind had tough decisions to make. Stay in jobs with notoriously low employee wages and risk infection, or stay home to keep themselves and their families safe. Unemployment Benefits, Economic Impact Payments and Child Tax Credits further increased the appeal of the latter option. 

So as restaurants reopened, the scramble was on. At the beginning of 2022, there were more than 1.7 million job openings. Meaning, for someone who wanted to stay in the restaurant world, it had never been easier to shop around for the best job. And the best jobs provide benefits.

When it comes to contributing factors for employee turnover in the restaurant business, a lack of emphasis on personal and professional well-being is high on the list. Late hours, double shifts, tough work-life integration, and unpredictable income leave restaurant workers especially vulnerable.

Alleviating stressors outside the workplace — whether worrying about career longevity or how to pay for medical bills — helps them feel more secure in their jobs, so they can maintain laser focus on delivering memorable dining experiences when they’re out on the floor or the line.

While base pay for restaurant workers has grown in 2024, they still earn some of the lowest wages in the country, and most of their earnings come from tips. Providing your staff with meaningful benefits, like paid time off and medical insurance, isn’t just the right thing to do. It can be a sustainable, profitable business model that boosts high employee retention and leads to a restaurant's success.

But in an industry with such tight profit margins and high operating expenses, how can restaurant owners afford to offer their employees these benefits while keeping labor costs down? The short answer is this: It’s more expensive to lose a good employee. Offering your staff good benefits and a great working environment encourages them to stick around, which saves you money in the long run.

How Actual Restaurants Offer Staff Benefits

Offering benefits can be costly, especially if you're trying to cut costs. We can’t ignore that.

According to a 2023 survey by the Kaiser Family Foundation, the average annual premium for employer-sponsored family health coverage increased 7% in 2023 to $23,968. This included employer and worker contributions. The average annual premium for single coverage also rose by 7% to $8,435. Around 90% of covered workers in 2023 have a general annual deductible for single coverage, which averaged $1,735. This figure is similar to the previous year, but 53% more than a decade ago.

New restaurant owners can find budget planning for benefits especially difficult. Benefits also make it more difficult to save money if your restaurant is in bad financial health. Businesses with hourly employees often strategically avoid providing staff with enough shifts to hit the hours-worked threshold, which legally requires the employer to offer medical or paid leave benefits. That’s not a good recipe for employee loyalty; in fact, it encourages staff turnover.

Think of a benefits plan as a need-to-have for business success, not a nice-to-have. Think of it as an investment in the future of your business, your staff’s lives, and your community. Ultimately, high staff retention can significantly boost your business strategy and help you achieve more financial goals.

In the 2019 Restaurant Success Report, we learned 31% of restaurateurs offered health insurance to their staff, with 18% providing 401K and 14% offering paid family leave. Benefit offerings vary a ton in our industry, so if you can offer any kind of strong benefits program, you’ll stand out as a desirable restaurant employer.

According to Black Box Intelligence’s State of the Workforce research for 2024, while staff turnover is still high in the restaurant industry, restaurants that offer top-tier salaries are experiencing a 6% lower turnover compared to lower-paying restaurants. Restaurants with lower turnover levels perform much better when it comes to traffic and restaurant sales growth. This is also true of benefits like health insurance - there is a correlation between employee satisfaction and turnover, just as there is a correlation between low turnover and increased sales. This means that by temporarily increasing labor expenses to include these benefits, most restaurants can directly impact future sales and directly impact how much profit they make.

Formed in 2007, the B Corporation certification is a way for businesses to commit to standards that can benefit all stakeholders: consumers, employees, business owners, and shareholders alike.

Today there are nearly 5,000 B Corps across the globe, from a wide array of industries. The list includes successful restaurants like Luke’s Lobster, a growing seafood chain with 28 locations in the U.S. Luke’s offers medical, dental, and vision coverage to all full-time managers, as well as all full-time (30+ hours/week) employees after 90 days of employment. They also provide things like pre-tax commuter benefits, 401k,  and flexible scheduling. They’re notorious for getting it right when it comes to making benefits part of their restaurant budget.

Bamboo Sushi, in Portland, OR, was one of the first hospitality businesses to become a certified B Corp. They think of themselves as a catalyst for change. Their website explains, “We make mindful business decisions that connect environmental impact, the prosperity of our team members and purveyors, as well as the enrichment of the communities we live in.” In practice, this includes competitive medical, dental, and vision benefits for full-time team members, along with perks like wireless carrier discounts, weekly pay, and career path training.

Martha Hoover of Patachou Inc., a restaurant group in Indianapolis with 350 employees, has managed to offer health insurance, 401k, an Employee Assistance Program, an Employee Emergency Relief Fund, and Financial Literacy Workshops to her huge team of full-time staff. “My goal is to keep good people in my company,” Hoover told Food & Wine. She also happily reports that her retention rate is a third higher than the industry average. So while her initial labor cost percentage may have been higher, she's certainly made that back tenfold and increased the restaurant's income.

Thai Fresh is an Austin restaurant with 48 employees. Owners Jam Sanitchat and Bruce Barnes found themselves dismayed by the pay disparity between kitchen staff and servers - with some being on minimum wage while others took home much more. So in 2016, they tried a base living wage for everyone, banned tips, and increased menu prices by 20%. They accurately predicted they’d lose 15% of profits, but sales bounced back in a year and turnover practically disappeared. “The environment is totally changed,” Sanitchat says. This new policy has also allowed them to add health insurance for full-timers and paid time off for everyone. “I don’t want to go back; it’s working for me,” says Sanitchat, who has a strong financial plan and is continually increasing food sales.

Juliet, in Somerville, MA, has nixed gratuity in favor of providing living wages and profit sharing to all members of staff. “We have a lot of people who are working at Juliet who don't necessarily want to work in restaurants long-term, but they're there because they can learn about the numbers, they can learn about our business model and they can learn how to run a business,” says server Sam Mangino.

How to Find Room in the Budget to Offer Staff Benefits

Rolling out a wide-scale benefits program might not be financially feasible right off the bat, and that’s okay. Start small and ease into benefits by offering low- or no-cost perks that help improve the day-to-day experience and wellbeing of your workers. Things like free meals and team-building activities go a long way to improving retention while keeping operating costs low.

Benefits will make employee compensation and labor a higher cost of doing business. And it can lead to a short-term dip in profitability. To make the numbers work, consider increasing your menu costs, adding a surcharge to the check, or reexamining your controllable costs to find additional budget.

Increasing Prices

Since high operating and food costs are the number one challenge facing restaurant owners, try using a food cost calculator to see what you’re spending, and modify purchases and prices accordingly. Adding a higher ratio of inexpensive carbs to your menu helps with food costs, along with adjusting portions. Other options include menu design that promotes your most profitable items, and highlight  seasonal items that use easily available ingredients.

Just be transparent, and communicate the reasons behind any changes to your guests. Customers might initially be disgruntled to see the price of their favorite dish increase, but if they understand it’s to provide their favorite bartender with health insurance, chances are, they’ll eagerly get on board.

Katie Rosengren, Juliet’s general manager, explains how raising prices and getting rid of tipping actually made them more competitive. “There are a lot of places around that will charge $15 for a brunch plate and then you tip on top of that. So if we charge you $15 for a brunch plate and you don't tip on top of it, we're actually cheaper than that other place,” said Rosengren.

Try a Service Charge

A service charge or automatic gratuity for large tables or parties has become common practice. It’s a good way to offset the costs of providing benefits to team members. In some cases, restaurants are using these models to completely replace traditional tipping.

Examine Controllable Costs

Unlike monthly expenses like rent, insurance and salaries for permanent staff, which are fixed costs from month to month, controllable costs are something managers can, well, exercise control over.  

A deep dive into controllable costs can reveal huge savings that will help offset the price of benefits. These can range from using a smart thermostat to control the heating bill, as well as regular equipment maintenance (to avoid costly emergency repairs), and eliminating fees and interest from loans.

Keep Staff on the Payroll

Consider baking in an incentive to your staff benefits program. Let your restaurant staff accrue time off based on the number of hours they work, or set up benefits that kick in once a staff member has reached a certain milestone, like their one-year anniversary.

For small- to medium-sized businesses, joining a professional employer organization or PEO can help make providing benefits more affordable. These entities help manage all sorts of HR activities, from restaurant payroll taxes to to health benefits, by entering a co-employment arrangement where the PEO becomes the employer of record for tax purposes. It also relieves a small business’s management team of time-consuming HR tasks. 

Here's a breakdown of potential budget allocations for benefits: 

Benefits That Benefit All

Providing employees with benefits that make their lives more comfortable is an investment, and not every restaurant can afford to provide health care and paid leave. Nevertheless, with strategic planning, cost (or profit) cutting, or higher prices, providing these benefits can work. And it's proven to be worth the effort. Many successful restaurateurs have shown that offering benefits pays off in staff retention, the ability to attract the best talent, and a reputation that cements the business’s place in its community for many years to come.

To learn more about restaurant staffing and retention, check out Toast Video Courses.

FAQs

What are the essential employee benefits restaurants should budget for?

Essential benefits include health insurance, paid time off, retirement savings plans, and employee meals or discounts. Evaluate what your employees value most to help you prioritize offerings within your restaurant budget.

How can I work out the cost of providing employee benefits?

Calculate the percentage of payroll you can allocate to employee benefits. Then, research the average costs of health insurance and other perks in your industry. Check with benefit providers for price estimates and think about reaching out to other restaurant owners for more insights.

Are there affordable benefits options for small restaurants?

Yes, there are affordable benefit options that small restaurants can offer. For example, joining group health insurance plans, offering flexible scheduling instead of monetary benefits, or providing free meals or discounts on food. Tax credits, like the Small Business Health Care Tax Credit, can help offset the costs of providing benefits.