Every week we comb through the news to find employment trends affecting the hospitality industry so you don’t have to. This week’s hospitality in the news topic: do increased pay rates equal reduced turnover?
Turnover in the hospitality industry
Throughout the years, one of the biggest challenges facing the hospitality industry has been high turnover. The restaurant industry experiences 1.5x higher turnover than other sectors, with an average churn of 73%. According to Business.com, companies should aim for an average turnover of 10-12% in order not to have a huge impact on their bottom line. Here’s a formula for calculating your business’ turnover rate:
When a business experiences high turnover, it shows that employees aren’t satisfied with their workplace. This could be for reasons such as pay, scheduling, or management (and a variety of others). If a restaurant has a high turnover, it means that they’ll have increased hiring needs to account for the employees that are quitting. And considering the current hiring climate we’re in, more pressure to hire will add unwelcome pressure to your staffing plan.
Do increased pay rates equal reduced turnover?
When a business wants to reduce their turnover, one of the first ways they may think to do so is by increasing pay rates. But do increased pay rates equal reduced turnover?
Unfortunately, the answer is a bit unclear. Studies show that paying employees more does lower your turnover rate. Plus, it can increase productivity which positively impacts on your bottom line. But this method is only effective until a certain point. Once employees are making above $25/hour, “additional compensation results in only a slightly lower turnover rate.”
Another study shows that, “An analysis of tens of thousands of small businesses reveals that the employee turnover rate is more than double the national average when employees are paid the federal minimum wage of $7.25/hour.”
With these points considered, we can extrapolate that restaurant managers will likely see lower turnover if they increase their hourly workers’ pay rates. For managers and other high-level positions, reducing turnover isn’t as simple.
An additional aspect to consider is whether you’re offering competitive pay. How do you stack up against your direct competitors? Do you offer any benefits? Are tipped employees making enough tips during their shift? Knowing this information can help you make more informed decisions surrounding pay.
Alternate options to improve turnover rates
When looking to improve turnover rates, increasing pay isn’t the only option. The fact of the matter is that another business will always pay $1 more or $1 less. And as we discussed, there’s only a positive impact on turnover up to a certain dollar amount. Ultimately, the culture within the restaurant itself will better establish loyalty amongst your team and limit turnover.
In addition to workplace culture, providing things like flexible scheduling, constructive feedback, and upskilling opportunities are great ways to improve turnover rates and staff loyalty.
When considering how to reduce turnover, it’s crucial to think about what employees want from their workplace. Putting a band aid on the situation by bumping up pay isn’t the end all be all answer. Find ways to help workers feel engaged and respected which will improve turnover rates in the long run.
(Did you know that LGC offers a Market Intelligence Package which combines employment data, relevant industry trends, and expertise we’ve culminated over almost two decades in the staffing and recruiting industries? Contact us to learn more.)