Managing payroll and staff costs in hospitality

I’ve seen many business owners underestimate how complex hospitality payroll can be. Between casuals, part-timers, penalty rates, and award changes, it’s easy to make mistakes. Getting it wrong doesn’t just cost money – it risks compliance breaches with the Fair Work Ombudsman.

In this post, I’ll break down the essentials of managing payroll and staff costs in hospitality, explain how award and penalty rates work, share strategies to reduce errors, and show how smarter rostering can help you balance labour costs with customer demand.

Understanding hospitality award rates and penalty rates

The first step to controlling payroll costs is understanding the rules you have to play by. In Australia, the Hospitality Industry (General) Award 2020 (often called HIGA) sets out the minimum pay and conditions for most hospitality workers.

Award rates cover base pay for full-time, part-time, and casual employees. Casuals, for example, receive a loading to make up for the lack of annual leave and sick leave entitlements. Rates also vary depending on age, role, and experience.

Penalty rates apply when staff work unsociable hours – late nights, early mornings, weekends, and public holidays. For example, a casual employee working a Sunday shift might earn time-and-a-half or even double time depending on the situation. These rates exist to compensate staff for working when most others are off.

The risks of getting this wrong are huge. In recent years, some of Australia’s most well-known hospitality names have been caught out underpaying staff. These cases often end with massive back-payments, fines from the Fair Work Ombudsman, and reputational damage that’s hard to recover from. As a business owner, you simply can’t afford to ignore award compliance.

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Strategies for reducing payroll errors and compliance risks

Payroll errors are unfortunately very common in hospitality. Staff change regularly, shift patterns vary week to week, and manual calculations leave plenty of room for mistakes. But there are ways to reduce the risks.

• Use payroll software with built-in award interpretation: modern systems can automatically calculate the right rate based on the shift details and the award conditions.
• Stay updated on Fair Work changes: awards are reviewed regularly, and minimum wage changes usually apply from 1 July each year. Subscribing to Fair Work updates or using a system that automatically adjusts rates can help you stay compliant.
• Keep proper records: under the Fair Work Act 2009, you must maintain accurate records of time worked, wages paid, and payslips issued. Poor record-keeping makes you vulnerable in an audit.
• Audit regularly: schedule internal payroll reviews every few months. If you find errors early, you can correct them before they become major liabilities.
• Train managers: supervisors who prepare rosters or approve timesheets should understand staff entitlements.

I use automation as much as possible. The less manual input, the lower the chance of costly mistakes. Automated payroll can handle the complex calculations, while still giving me clear visibility over wage costs.

How to roster smarter to match revenue with staffing

Even if you pay everyone correctly, labour costs can spiral out of control if you’re not rostering strategically. In hospitality, wages often represent 30 to 35 per cent of revenue. If you don’t get staffing levels right, you either burn money with too many people on shift or miss sales because you don’t have enough staff on the floor.

Smarter rostering starts with understanding your sales patterns. A good POS system can show you when your busiest times occur – maybe weekday lunches are quiet, but Friday and Saturday nights go off. Matching rosters to these peaks and troughs is key.

Some practical strategies I’ve used:

• Base rosters on revenue, not guesswork: set a target labour cost percentage and adjust shifts accordingly.
• Use forecasting tools: some rostering software predicts demand based on past sales data and even weather.
• Stay flexible: have a pool of casuals you can call in if trade is unexpectedly busy, and be prepared to cut shifts short in a downturn.
• Cross-train staff: a barista who can also serve tables or a cook who can run the pass gives you more flexibility without adding headcount.

When your rosters are directly aligned with customer demand, you’ll see a big improvement in profitability without compromising service.

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Practical tips for controlling payroll costs

Beyond awards and rosters, there are some other simple ways to keep payroll costs under control:

• Consider part-time contracts instead of relying solely on casuals. While casuals give flexibility, their higher loading and penalty rates can add up quickly.
• Track KPIs like sales per labour hour or wage cost as a percentage of revenue to stay on top of performance.
• Review rosters weekly instead of monthly so you can quickly respond to changes in trade.
• Build seasonal variations into your planning. For example, if you know January is quiet, scale back staff in advance rather than scrambling at the last minute.

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How automation can help hospitality businesses

Hospitality payroll is complex, but technology is making it easier to manage. Automated payroll and accounting systems can:

• Calculate award and penalty rates automatically.
• Sync timesheets with payroll to eliminate double entry.
• Generate compliant payslips and tax reporting for the ATO.
• Integrate with rostering and POS systems to give you real-time insights into staff costs versus sales.

I’ve found that automation saves hours every week, reduces errors, and frees me up to focus on what matters most – serving customers and growing the business.

Final thoughts

Payroll and staff costs are one of the biggest challenges in hospitality, but they don’t have to overwhelm you. By understanding award and penalty rates, reducing compliance risks through automation, and rostering smarter to align staff with revenue, you can keep costs under control while still looking after your team.

With the right systems in place, you’ll spend less time stressing about payroll and more time creating memorable experiences for your customers. That’s what running a hospitality business should be all about.