How overstaffing and understaffing affect small-business profit

Written by Roster Flow. Published 28 July 2026.

Most owners worry about overstaffing, because it is the one that shows up on paper: payroll arrives with a number on it. Understaffing does not send an invoice. The customer who sees the queue and keeps walking, the order that took too long, the employee who works through a break and resigns two months later: none of those has its own line in the accounts, but all of them come out of profit.

The roster that makes the most money sits between the two, and it is rarely the cheapest roster on paper. Getting there starts with seeing both problems clearly, then measuring them in the same currency.

Overstaffing and understaffing are about the hour, not the week

Neither word means a number of people. Four staff on a Tuesday afternoon may be too many, and the same four on a Saturday morning too few. The test is the work in front of them:

• Overstaffed means more paid hours than the trade in that hour needs, so people fill time instead of serving customers.
• Understaffed means fewer people than the trade needs, so customers wait, leave or get worse service, and the team skips breaks or stays late to catch up.

Most businesses are both in the same week, and often on the same day: a full team through a quiet mid-afternoon and one person short at the lunch rush. That is why total hours for the week hide the problem. The mistake is usually in when people are rostered, not in how many.

What overstaffing costs

Overstaffing costs the wages for the hours that were not needed, plus what is paid on top of them: superannuation, and payroll tax and workers compensation premiums where they apply. It costs more again when the spare hours fall at times the award pays at higher rates, such as weekends and public holidays. Under the Restaurant Industry Award, for example, Saturday and Sunday hours are paid at a higher percentage of the minimum hourly rate than weekday daytime hours (clause 24.2 and Table 8), and the Restaurant Industry Award pay rates page sets out the current rates.

Sending people home early is the usual fix on the day, and it saves less than it seems. A casual has a minimum engagement: under the Restaurant Industry Award 2020 and the Hospitality Industry (General) Award 2020, a casual must be engaged and paid for at least 2 consecutive hours each time they attend work (clause 11.3), and under the General Retail Industry Award 2020 the minimum daily engagement is 3 hours in most cases (clause 11.2). Full-time and part-time employees are different again. Under the Restaurant and Hospitality awards, their roster can be changed by mutual agreement or with 7 days’ notice (clause 15.3(d) of the Restaurant award and clause 15.5(d) of the Hospitality award), so overstaffing on their shifts is usually fixed in next week’s roster, not this afternoon.

The quietest cost of overstaffing is habit. A shift that was needed a year ago stays on the roster because nobody has checked it, and it costs the same again every week. Forecasting staffing from weekly sales is the way to catch those shifts before they are rostered.

What understaffing costs

Understaffing looks like a saving in the wage bill and spends it somewhere else. The costs fall into five groups.

Two of those carry award costs worth knowing. Under the Restaurant Industry Award, if an employee is not allowed to take an unpaid meal break at the rostered time, the employer must pay 50% of the ordinary hourly rate extra from when the break was due until it is taken or the shift ends (clause 16.5). And under the Restaurant and Hospitality awards, a part-time employee is paid at overtime rates for time worked beyond their rostered hours (clause 10.13), so asking a part-timer to stay back because the shift was short is not an hour at their usual rate. Other awards have their own rules, and the Fair Work Ombudsman’s Find my award tool shows which one applies to you.

Why understaffing is harder to see

Wages are counted to the cent every pay run. Lost sales are not counted at all, because a sale that never happened leaves no record. A manager who cuts a shift sees the saving straight away and never sees the cost. A manager who adds one sees the cost straight away and has to trust that it paid for itself. Left to the numbers that are easy to see, rosters drift towards understaffing.

The answer is to count what you can. Tally the customers who leave the queue during a couple of busy periods. Compare transactions in your busiest hour with the hours either side: if the peak is flat while the room is full, the team is probably at capacity. And check the gap between rostered and actual hours, because a roster that is too thin is usually rescued by people staying late. Comparing rostered and actual labour costs shows how to find that gap.

Put both on the same scale: gross profit

Wages and lost sales cannot be compared directly, because a dollar of sales is not a dollar of profit. The fair comparison is gross profit, what is left of a sale after the cost of the goods sold. If your gross margin is 60%, every $100 of sales leaves $60 to pay wages, rent and everything else. That gives a simple test for any extra hour on the roster:

extra sales needed to pay for an hour = cost of that hour ÷ gross margin

At an hourly cost of $36 including super and a 60% gross margin, an extra hour pays for itself if it brings in $60 of sales that would otherwise have been lost. These are example figures. Use your own average cost per hour from payroll and your own margin from your accounts.

A worked example: one Saturday, both problems

A cafe covered by the Restaurant Industry Award works to that $36 average hourly cost and 60% gross margin. On Saturdays it has four people on from 7:00 to 15:00. One Saturday, the owner watches the day and writes down two things.

The roster was too thin and too thick on the same day, so the fix is to move hours, not simply add or cut them. Next Saturday, one of the four finishes at 13:30 instead of 15:00, saving 1.5 hours at $36, which is $54. A casual comes in from 11:30 to 13:30. A casual costs more an hour than the team average, because of the 25% casual loading (clause 11.1) and any weekend rate, so the owner costs that shift at $45 an hour, an example figure, which is $90. Labour cost rises by $36. If the extra person keeps the 12 customers who left, that protects $108 of gross profit, and the day comes out $72 better.

Two checks before that roster goes out. The 2 hour casual shift meets the minimum engagement in the Restaurant Industry Award (clause 11.3), but under an award with a 3 hour minimum, such as the General Retail Industry Award, the shift and the sums would change. And if the person finishing earlier is full-time or part-time, the change needs their agreement or 7 days’ notice (clause 15.3(d)).

How to find the hours that are wrong

1. Pull sales by hourTake four weeks of hourly sales and transaction counts for the day you want to fix, and average them.
2. Lay the roster over itCount the people rostered in each hour and work out sales per labour hour for each one.
3. Mark the extremesHours well above your usual sales per labour hour may be understaffed, and hours well below it may be overstaffed.
4. Check on the floorWatch a few of those hours. A high figure with no queue is simply a good hour, and a low figure during deliveries or prep is work that sales do not show.
5. Move hours before adding themTake hours from the quiet end of a shift, put them at the peak, and cost the change before publishing it.
6. Review in four weeksCompare the same hours again, including walkouts, late finishes and missed breaks, before deciding the change worked.

The staff coverage calculator lays the people needed each half hour against the shifts on your roster, which makes the gaps and overlaps easier to see.

Fixing overstaffing without creating understaffing

• Stagger starts and finishes, so the team builds up to the peak and winds down after it, instead of everyone working the same hours.
• Shorten shifts at the quiet end, keeping each one at or above the minimum engagement in your award.
• Move tasks into quiet hours. Prep, cleaning, stock and ordering belong in the time that sales do not fill.
• Keep a minimum crew for safety and service, however quiet the forecast is.
• Give notice properly when a full-time or part-time roster changes. Under the General Retail Industry Award, a part-time employee’s regular pattern of work, other than their guaranteed hours, can be changed with 7 days’ written notice, or 48 hours in an emergency, and guaranteed hours can only change by agreement (clause 10.10).

Fixing understaffing without blowing the budget

• Add short peak shifts rather than full days, within the minimum engagement.
• Train people across roles, so the barista can run the till and the kitchen hand can serve when the queue builds.
• Roster breaks around the rush, before or after it, so they can be taken at the rostered time.
• Do the prep earlier, so the peak is spent serving customers rather than getting ready for them.
• Pay for it by moving hours. A roster that is short at the peak usually has spare hours somewhere else in the day, which keeps the week inside its wage budget.

Then check the percentage. Adding hours at the peak can push labour cost as a share of sales up slightly and still make more profit, which is why a labour cost percentage should always be read alongside how the day actually traded.

Roster Flow helps once you know which hours to move: availability and leave from staff phones, the roster published to everybody at once, clock ins that become timesheets, and approved hours sent to Xero, MYOB or a CSV file. See how it works for hospitality and retail.

A checklist for a balanced roster

• Each hour is rostered from expected trade, not copied from last week
• Sales per labour hour is checked hour by hour, not only for the week
• Walkouts, missed breaks and late finishes are counted, not guessed
• Extra hours are tested against gross profit, not against sales
• Hours move from quiet times to the peak before new hours are added
• Every shift meets the minimum engagement in your award
• Changes to full-time and part-time rosters follow the award’s notice rules

Sources

• Fair Work Commission: Restaurant Industry Award 2020 [MA000119]
• Fair Work Commission: Hospitality Industry (General) Award 2020 [MA000009]
• Fair Work Commission: General Retail Industry Award 2020 [MA000004]
• Fair Work Ombudsman: find my award

Back to the blog