Study links low pay, poor benefits to high turnover

Pay now, or pay later? That’s the choice presented in the less-than-flattering report of the restaurant industry’s human resource practices released today by Restaurant Opportunities Centers United (ROC United) and Cornell University. Pay employees better and retain them, or lose them at alarmingly high rates and pay for the cost of rehiring and retraining new ones.

That’s the takeaway of the study titled High Road 2.0: A National Study of Human Resource Practices, Turnover and Customer Service in the Restaurant Industry, which examined the management practices and the outcomes across four customer segments (upscale fine dining, casual fine dining, moderately priced family restaurants and fast food/quick-service restaurants) after a telephone survey of managers from 1,150 restaurants across the country.

The results don’t paint a pretty picture of an industry that employs more than 10 million people and last year accounted for estimated sales revenue of $660.5 billion, according to the NRA.

Almost one in every two fast food workers quits or is fired each year (47 percent), while moderately priced restaurants’ turnover is at 40 percent, casual fine dining 28 percent and upscale fine dining 26 percent. The costs of that turnover? The study calculates it to be $18,200 for an establishment with 30 employees, which could add up to $1.82 million for a chain of 100 of those restaurants.

As you move up the ladder in customer segment and the turnover decreases, the pay and benefits increase. Employees at moderately priced restaurants get on average 31 work hours a week (30 for front of house/35 for back of house), while the upscale segment average is 35 hours (30 front/40 back). Fast food workers average $255 a week, well below moderate ($431), casual ($573) and upscale ($659). In those latter three segments, front of house workers make significantly more on average than their counterparts because of tips.

Worker benefits, often limited because of part-time hours, are minimal as well. Paid vacation is scarce—ranging from 32.4 percent of fast food workers to 52.3 percent of upscale workers—while paid sick time is even less likely (topping out at 27.3 percent in upscale). Approximately 30 percent of fast food, moderate and casual fine dining workers receive employer subsidized health insurance, while upscale is at 53.8 percent.

The authors of the study—Rosemary Batt and Jae Eun Lee of Cornell’s School of Industrial and Labor Relations and Tashlin Lakhani of Ohio State—conclude through various analyses that better HR practices would reduce turnover by almost half.

“We hope this report is a major wake up call to restaurant owners taking on the ‘business as usual’ attitude,” says Saru Jayaraman, cofounder and codirector of ROC United, an organization whose mission is to increase wages and working conditions for restaurant workers. “The restaurant industry is extraordinarily people-powered, yet one of the least worker friendly industries out there, which comes with a major financial cost to each restaurant. The bottom line can grow as a result of ethical, high road employment practices.”

Download the full report here.