The Benefits Advantage
By Marilyn Odesser-Torpey

Quick-serve’s pool of potential employees is dwindling. Will offering benefits stem the flow?

As aging Boomers make way in the workplace for a smaller Generation X and the overall job market picks up, restaurant industry analysts warn that that the pool of potential restaurant employees is shrinking. In fact, the Dallas, Texas-based human resource analysis and tracking firm People Report warned at its recent Annual Best Practices Conference that by 2006 “there will be only one new employee entering the workplace for every two who are leaving.”

The National Restaurant Association’s (nra) most recent forecast on quick-service restaurant trends indicates that some operators are already beginning to feel the pinch. In a survey last year, one quarter of respondents rated “recruiting and retaining employees” as their biggest challenge. The cause? Escalating competition in a industry offering more job opportunities—about 127,000 jobs over the past three years—to a shrinking population.

“Trends for concern are ones that either prevent companies from developing their future labor pools, or those that reflect problems with retaining current employees,” People Report says. “The service sector workplace will become more competitive, with fewer employees available to fill more jobs.”

Some progressive operators are already discovering that one effective way to attract quality, long-term employees and stem the high turnover rate is by offering menus of meaningful, flexible, and competitive healthcare and other benefits to hourly as well as salaried employees. In the recent Survey of Unit Employment Practices (sulep) People Report conducted among its 75-member restaurant industry consortium member companies, the organization found that the average annual turnover rate for those who offered basic health, dental or 401(k) benefits was 109 percent, compared to a rate of 136 percent for those companies that did not offer any benefits.

Furthermore, the survey showed that the average annual turnover rate for responding companies that offered all three benefits was 104 percent, as opposed to the 128 percent rate for those companies that did not offer all three.

“In my 30-plus years of experience with several of the foodservice industry’s largest and most successful chains, I’ve watched benefits programs evolve to the point where competition demands that companies offer comprehensive benefits, just to be considered by prospective employees,” says industry consultant Bob Puccio, president of Business Solutions 2000 in Thousand Oaks, California.

“Hourly employees are much more sophisticated these days; they’re looking toward the long-term and building a nest egg,” agrees People Report president Teresa Siriani.

Among the quick-service segment respondents to the NRA survey, nine out of 10 said they offered group health insurance to salaried employees while just over half offer coverage to hourly employees. Nearly all respondents indicated that their annual health insurance costs increased during the past two years, with an average increase of 22 percent per year.

However, industry experts point out, savvy operators are realizing that the cost of retaining quality employees is balanced out by increases in sales.

“Studies in the restaurant business and other industries have shown that the higher the tenure of the workforce, the higher the sales per square foot and per employee,” says Hudson Riehle, NRA’s senior vice president of research. “In the back of the house, experienced employees make production more efficient; in the front of the house, veterans tend to be more knowledgeable about the menu offerings and ready to point out additional items to round out a customer’s meal.”

Based on these realities, industry analysts recommend that instead of viewing employee benefits costs as operational expenses that weaken the bottom line, more operators would do well to view them as necessary investments that will increase profitability in the long-run.

“You can only cut operational expenses so far before you actually hurt your business,” Riehle says. “The only way to remain a vibrant, growing business is to increase sales.”

“Hourly employees are much more sophisticated these days; they’re looking toward the long-term and building a nest egg.”

Industry Examples

In a study conducted three years ago, the 83-unit Noah’s Bagels found that the longer their general managers worked in their stores, the more successful they were at developing relationships with guests and building the numbers of repeat customers, says Masha Schricker, vice president of human resources for Noah’s parent company New World Restaurant Group. To attract and retain career-minded employees at both the salaried and hourly levels, Noah’s offers health care coverage “that begins on day one.”

New hires at Noah’s are immediately eligible for coverage of up to $1,500 under an interim insurance program that continues until they are eligible for the company’s regular medical plan—a period that usually spans between seven and nine months.

“This is particularly attractive for single mothers and individuals with families ,” she says.

Salaried employees at Noah’s are eligible for full coverage the first day after their first full month of employment. Schricker notes that to ensure employee access to the largest number of physicians in all of the locations where Noah’s has restaurants, the company has chosen to move from a Health Maintenance Organization (hmo) to a Preferred Provider Organization (ppo).

All employees over the age of 21 and who have been employed for more than six months may also join a 401(k) savings plan. Noah’s matches contributions on a sliding scale ranging from a minimum of 25 percent to a maximum of 75 percent, based on company performance.

Comprehensive medical, dental, and vision coverage packages along with a 401(k) plan have helped the close to 90-unit Corner Bakery Café chain keep turnover rates for the last three years under 100 percent for hourly employee and under 20 percent for managers, according to company human resources director Denise Kendrick-Clemens.

Businesses of all sizes need to recognize the special tax treatment accorded to employer-sponsored health insurance, says Denny Dennis, senior research fellow at the National Federation of Independent Businesses (nfib). Explaining that coverage is typically fully tax deductible as a business expense to the company and is not treated as taxable income to employees, employers can attract and retain good people while lowering their compensation costs by offering packages of health care insurance and wages, rather than higher wages alone.

Starbucks, for example, offers full- and part-time employees custom-tailored wage and benefit “Total Pay” packages. Each employee is invited to create “Your Special Blend” of benefits by choosing from a variety of options including medical, prescription drug, dental, and vision coverage. Also available are retirement savings plans, adoption assistance, domestic partner benefits, and referral programs and support resources for child and eldercare.

Companies such as Noah’s and Corner Bakery have found that offering employees the opportunity to set aside wages for non-group health-, elder-, and child care-related expenses in non-taxable flexible spending accounts is also a viable way to provide their people with the coverage they want while keeping expenses at manageable levels. Siriani points out that some operators are also offering their hourly employees tuition reimbursement, adoption assistance, and other benefits that were formerly available only to salaried employees.

To attract and retain career-minded employees at both the salaried and hourly levels, Noah’s offers health care coverage “that begins on day one.”

Benefits Beyond Insurance

According to the SULEP survey, many of today’s employees are looking for companies that offer benefits beyond insurance. One example is extensive orientation and training.

“Among our respondents, companies that offered one to two hours of orientation had an average annual turnover rate of 120 percent; that number dropped to 86 percent for companies that offered more than four hours,” Siriani says.

Another strong selling point among younger employees is community involvement. Over a two-year period, SULEP respondents that contributed to or sponsored community service events said they experienced a drop in hourly employee turnover from 134 percent to 109 percent; management turnover decreased from 35 percent to 32 percent.

Corner Bakery regularly reevaluates its benefits offerings through surveys, focus groups, and questionnaires to ensure that the company’s offerings are keeping up with employee needs, according to Kendrick- Clemens.

Experts predict that as the economy perks up, companies committed to employee satisfaction will reap even more of the benefits.

“We believe that the turnover rate will rise as the economy strengthens and unhappy employees come out of hiding to seek new, more satisfying jobs,” Siriani says. “That’s why this is the time when companies should be taking a good, hard look at the people we have and developing strategies for keeping the best ones.”