BlogIs higher wage the solution to the current hiring crisis for the US restaurant industry?

August 16, 20210
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The restaurant industry in the US has been witnessing a critical hiring crisis which has been worsened due to the current unemployment benefits being provided by the government. COVID put more than 5 million restaurant employees out of a job. With QSRs witnessing almost 150% turnover, the restaurants are now spending more time on finding people to fill available positions. This has taken a huge toll on the daily operations and sales of most restaurants. The unemployment benefits are expected to end by September 2021 and more people would turn up for jobs. However, there are other challenges that could complicate the situation further.

Employee Replacement VS Employee Retention

McKinsey & Company estimates replacing an employee can cost 20–30 percent of an annual salary, on average. By contrast, retaining a worker costs less than 10 percent of annual pay. Clearly, it makes more sense to retain employees and provide opportunities for them to grow their career with the current organization. This also saves time and cost in initial training which coupled with the high turnover, often becomes a costly affair.

Gone are the days when monetary benefits were the most effective means to retain employees. The pandemic has forced restaurants to rethink their employee retention strategies and also leverage it for attracting people to take up vacant positions. One of key things that restaurants have to realize is that the majority of their workforce consists of millennials and Gen Zers who grew up with digital accessibility. They expect modern communication tools, gig-like flexibility, and the ability to complete transactions quickly and easily from their mobile devices. By providing the right tools and technology solutions, restaurants will stand a chance at retaining their modern workforce and also enabling them to perform better.

Why do hourly employees quit?

The biggest misconception by restaurants with respect to high turnover is that employees quit because of higher wage expectations. While hourly pay is a significant factor contributing to the turnover, it is not the only reason. According to a recent study, 59 percent of hourly employees quit their jobs due to lack of schedule empowerment. This is basically targeted towards the working flexibility that millennials prefer for being able to maintain a proper work-life balance. With WFH (work from home) arrangements increasing significantly during the pandemic, people are now inclined to working on a flexible schedule rather than a fixed schedule.

The study also reported that 39 percent of hourly employees quit because of poor communication with the employer. It is important for organizations, especially restaurants, to keep clear communication channels with their employees so that any conflict, grievance, or concerns can be addressed on time. If these issues are addressed promptly with proper communication, organizations will have a better chance at retaining employees. Clear communication between employees and the organization also ensures the creation of a connected workforce which is crucial for the survival of any business in today’s scenario.

A very minor segment of hourly employees (approximately 2 percent) has said that they quit their jobs due to lack of early payment opportunities. Given the current post-pandemic scenario, medical emergencies can be expected and employees would like to have some financial backing in order to manage the expenses. Although the percentage of respondents quoting this as the reason for quitting jobs is very small, they do highlight an important concern that may affect the decision of employees in the coming months.

Is higher wage the solution to the hiring crisis?

As discussed above, hourly pay is not the only reason behind employees quitting their jobs. Most restaurants are already running on razor-thin margins and are in the red after 18 months of punitive lockdowns in varying forms. Restaurant operators say that the only way to bring staff back is to get rid of the high unemployment payments keeping them at home. By increasing wages to attract and retain employees, restaurants would be forced to increase menu prices which would lead to loss of sales and customers. Some restaurants might even be forced to shut down if they had to increase prices just to manage the increased resource cost.

Higher wages may seem the most effective (and easiest) solution to the hiring crisis, but it will lead to a whole new set of challenges which could put the restaurant at a considerable risk of shutting down for good. With the unemployment benefits expected to end by September 2021, restaurants should now plan ahead to identify the means to attract and retain employees. A good strategy would be to invest in technology and undergo a digital transformation in order to provide the right tools to their employees. This would not only make them efficient at their work, but also allow them enough time to develop their competencies for larger roles in the organization.

Restaurants should also invest in their people through employee recognition and reward programs where the team gets to celebrate the achievements of their peers. Peer recognition and appreciation helps to build a people-first culture which can attract several people to take up jobs in the organization. Additionally, organizations need to implement an effective onboarding plan for new hires so that they are fully equipped to execute their responsibilities properly.

Conclusion

The issues are not going to get resolved overnight and reacting to market sentiments will only create more hurdles for restaurants looking to hire employees. The best way going forward is to first implement an employee retention program, followed by innovative strategies to meet the expectations of the modern workforce. Only then can the restaurant industry witness a gradual change in the dynamics of the recruitment needs.

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