Restaurant employment strategies and benefits for a more stable workforce

Hiring and retaining employees continues to be a major challenge for restaurant owners and franchisees. According to a recent survey by the National Restaurant Association, 62% of restaurant operators report not having enough employees to meet customer demand, and 79% say they have job openings that are difficult to fill.  The food service and accommodation sector’s quit rate of 5.1% is also higher than any other industry, according to the Bureau of Labor Statistics. 

Entry-level restaurant workers can be especially difficult to hire and retain. With 59% of food prep workers under the age of 25,  many potential entry-level workers may not believe there are opportunities for advancement in a restaurant job and therefore enter the job with expectations of it being only a stepping stone on their career path.  

Restaurant owners, therefore, need to think creatively about how to differentiate their workplace to attract the best new hires and motivate them to stay. In this Q&A, John Quinn, head of Institutional Retirement Product and Distribution for Bank of America, and Aliya Willis, senior relationship manager for Global Commercial Banking at Bank of America, offer insights on the wide range of benefit options restaurant owners may want to consider to help build a motivated, engaged workforce.

What factors are contributing to the current workforce shortage at restaurants?

Aliya Willis: Even before the pandemic, restaurants were struggling to hire enough workers. But rolling shutdowns accentuated the labor shortage because many laid-off restaurant workers found permanent jobs in other industries. Then, as the pandemic receded, workplace shortages and rising inflation resulted in restaurants operating fewer hours per week, further reducing jobs. Meanwhile, high rates of employee turnover have made restaurant operating margins even thinner because, by one estimate, replacing one employee costs a restaurant an average of $5,864 in training expenses and productivity loss.

What can employers do to meet employee needs while also managing to their bottom line?

John Quinn: The labor shortage has caused restaurant owners to increase wages for their workers, but they have to be able to offer more than better base pay to stay competitive. Adding benefits to the employment package promotes greater employee satisfaction so people want to come to work and are more likely to stay. Restaurants operate on thin margins, so the considerable expense of having to hire and train new staff due to high employee turnover is a major drain on profits. A restaurateur needs to evaluate whether their benefit package is attractive enough to retain employees. Even if those benefits introduce some incremental day-to-day operating expenses, the reduction in employee churn rates can give owners a very compelling and financially beneficial reason to invest in benefits for their employees.

What types of benefits would help attract and retain entry-level restaurant employees, who are among the youngest workers?

Willis: If you want your employees to care about what’s important to you, you have to show that you care about what’s important to them. One way to demonstrate that you understand your employees’ needs is to offer a lifestyle spending account (LSA). An employer puts dollars into an account for each employee to spend on a customized selection of items or activities (the money is taxable just like salary and appears on the employee’s W-2). Restaurateurs can limit employees’ use of those dollars for a specific purpose, or they can leave the program open and allow employees to use those dollars for anything they feel is important to them. 

LSAs can be a way to incentivize a workforce that often logs long hours under stressful conditions by letting workers pursue things like wellness activities. An LSA might be targeted to pay for gym memberships, yoga classes or weight-loss programs. Or, if getting employees to stay with the company is challenging, the promise of an LSA contribution after six months may be a way to encourage a longer tenure. Or employees can earn funds if they complete training modules.

Often younger employees aren’t fully aware of how to use their benefits to their advantage. How do you solve that problem?

Willis: It’s critically important to pair a retirement plan with a comprehensive financial education program. If you can help your employees learn how to budget their money, they can feel more confident in putting some of their discretionary income into retirement savings. As a financial partner, Bank of America has programs like Better Money Habits®, for example, that provide a basic financial education to improve the financial lives of employees, with guidance on budgeting, cash management, the importance of saving money and how to invest. The restaurant industry has a workforce that comes from a diverse array of backgrounds and levels of affluence, and some employees may not have a checking account, which means they are charged fees when they cash their paychecks. Better Money Habits shows them how to open a checking account to avoid those fees and how to sign up for savings accounts so they can start saving.

Are there benefits that might be particularly attractive to employees who are still in school?

Willis: One sought-after benefit that can help retain student employees is tuition reimbursement. Many employers stipulate that workers must stay employed with the company for a certain length of time to qualify, generally between 18 months and two years after receiving the reimbursement. And employees typically have to work at the company for a year before they’re eligible for the benefit.

Many employees want help with their healthcare and daycare expenses. What can owners offer?

Quinn: Restaurant firms may want to consider offering employees a health savings account, which works with eligible health insurance plans that have higher deductibles than many traditional health plans and typically lower premiums. Another valued benefit is a dependent care flexible spending account to allow workers to pay, using pre-tax dollars, for daycare, preschool summer camp, before- or after-school programs or adult care.

A retirement plan is one of the most sought-after benefits by managers and senior employees. Yet only a minority of small businesses, including restaurants, offer a 401(k) plan. Why?

Quinn: In the past, 401(k)s were not particularly attractive to restaurant owners because the plans were costly, burdensome to administer and had significant compliance requirements. But today there are many advances, such as turnkey plan designs and digital platforms, that make retirement plans simpler to administer and much less expensive. For example, a multiple employer plan, or MEP, allows many small business owners to participate in one plan. In a traditional 401(k), the employer is the fiduciary for the plan and responsible for choosing the investments, designing the features and conducting ongoing compliance testing. In an MEP, all those duties are handled by a separate plan sponsor. And depending on how many small businesses are participating in an MEP, the costs can be substantially lower than a traditional 401(k). For restaurant operators with fewer than 100 employees, a great option is a Simple IRA, to which both employees and employers can contribute.

Are there financial benefits for restaurant owners when they offer a retirement plan?

Quinn: Small business owners who offer a match to employees’ contributions get a tax deduction on the firm’s contributions. And recent legislation gives small business owners a tax credit of up to 100% of the expense for setting up and administering a plan for the first three years. Those are very strong incentives for employers to offer a retirement plan.

The restaurant workplace is one of the most diverse in the U.S. economy. According to a 2022 Department of Labor estimate, nearly half of restaurant workers are minorities. What can restaurants do to support this diverse population?

Quinn: When a restaurant creates an inclusive workplace culture, employees feel they belong, which makes them feel more engaged in their jobs and more productive. To promote a culture that values diversity, restaurants should provide diversity, equity and inclusion training to all employees and develop mentorship programs that might include language classes or computer classes to help employees advance in their jobs.

Along the same lines, what kinds of things can restaurant owners do to foster a positive workplace culture?

Willis: One thing to aspire to is to know your individual employees. What do they care about? Then encourage open communication: Have you taken steps to ensure that your workers feel comfortable talking to their managers about workplace frustrations or issues? You can also make your employees feel valued and respected, and recognize outstanding performance with gift cards, tickets or other rewards. Restaurants often have young employees, so you might offer schedule flexibility that allows for time off for special events, such as graduations and extracurricular activities. Building team camaraderie, especially if you have employees from diverse backgrounds, is also important. One restaurant hires a DJ and hosts Taco Tuesdays to make it fun for employees to come to work, and others offer various team building events to create a sense of community.

Offering benefits to employees can go a long way toward making them feel valued and can increase loyalty. Restaurant jobs are notoriously demanding, but benefits elevate morale and enhance job satisfaction — and productivity. And potential new employees are sure to be enticed by an entry-level job with benefits. Talk to your Bank of America Relationship Manager to learn more about employee benefit options.

¹ National Restaurant Association, “Restaurant Business Conditions Survey,” December 2022.

² Bureau of Labor Statistics, “Quits levels and rates by industry and region, seasonally adjusted,” Aug. 1, 2023.

³ National Restaurant Association, “Restaurant Employee Demographics,” March 2022.

Disclaimers

Potential Tax Advantages: HSA Account holders can receive tax-free distributions from their HSA to pay or be reimbursed for qualified medical expenses they incur after they establish an HSA. If they receive distributions for other reasons, the amount withdrawn will be subject to income tax and may be subject to an additional 20% tax, unless an exception applies. Any interest or earnings on the assets in the account are tax-free. Account holders may be able to claim a tax deduction for contributions they, or someone other than their employer, makes to their HSA directly (not through payroll deductions). In addition, HSA contributions may reduce state income taxes in certain states. Certain limits may apply to employees who are considered highly compensated key employees. Bank of America recommends you contact qualified tax or legal counsel before establishing an HSA.

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