Controlling Labor Costs

Controlling Labor Costs • Controlling Foodservice Costs 9 OH 9-1

Chapter Learning Objectives • Distinguish between fixed, variable, and semivariable costs. • Explain how payroll cost, Federal Insurance Contribution Act (FICA), Medicare, and employee benefits make up labor cost. • Describe the components and factors to consider in the development of a master schedule. • Explain the difference between a master schedule and a crew schedule.

Chapter Learning Objectives continued • List the factors that affect labor cost. • Explain how direct factors, such as business volume, affect labor cost. • Calculate turnover rate percentage, total dollars for labor costs, dollars available for scheduling, and hours available for scheduling. • Explain how indirect factors, such as quality and productivity standards, affect labor costs.

Types of Costs • Fixed costs • Stay the same regardless of increases or decreases in volume • Variable costs • Increase or decrease with increases or decreases in volume • Semivariable costs • Part fixed and part variable; also increase or decrease (but at a slower rate) with increases or decreases in volume

Fixed and Variable Payroll Costs

Pay Includes employee’s hourly wages Includes management salaries Other Payroll Costs Includes payroll taxes and assessments Includes benefits costs Total Labor Cost Consists Of

Payroll Taxes and Assessments • Federal Insurance Contribution Act (FICA) • Federal retirement and medical benefit program • Paid through payroll taxes • Includes contributions from employees and employers • Currently set at a 6.2% employee/employer match

Payroll Taxes and Assessments continued • Medicare • Federal health-care program • Paid through payroll taxes • Includes contributions from employees and employers • Currently set at a 1.5% match

Payroll Taxes and Assessments continued • Federal and state programs • May be related to worker’s injury or compensation and/or unemployment insurance programs • City or local programs • May be related to taxes on gross payroll or other special assessments

Paid holidays Paid vacations Paid sick or personal days Health insurance Life insurance Disability insurance Dental insurance Vision insurance Company-funded retirement programs Common Employee Benefits

Labor Cost Percentage • Restaurant managers must relate the dollars spent for labor to the sales generated by those labor dollars.

Estimated Daily Payroll Cost Percent • Step 1 –Divide weekly management cost by the number of days open per week to determine the daily management cost. • Step 2 –Add the variable (hourly) labor used per day to the daily fixed labor calculated in Step 1 above. • Step 3 –Divide the daily payroll costs by the estimated daily sales to determine the estimated daily payroll cost percent.

Budget as Cost Control Tool • Budgets help control spending. They are best prepared after evaluating • Menu items to be served • Expertise needed to execute the menu • Methods of food preparation • Type of service • Facility’s location • Impact of holidays

Creating Schedules • Perform historic sales analysis with • Yearly and monthly data from past income statements • Hourly, daily, and weekly point-of-sale (POS) data • If no POS is available, undertake a guest check analysis.

Creating Schedules continued • Sales Projections • An estimate of future sales • Include increases or decreases to historical sales patterns • Consider national and local economic trends

Forecasting Labor Costs—A Three Step Process • Step 1 – Determine total available labor dollars. • Step 2 – Subtract costs of employee benefits and taxes.

Forecasting Labor Costs • Step 3 – Subtract fixed labor costs. Employee schedules are planned with this dollar amount to help ensure targeted labor costs are met!

Master Schedules Identify the Number of Required Employees • Forecasting servers • Divide estimated number of covers by the number of service hours to assess the covers per hour. • Divide covers per hour by the number of covers for each server. • Adjust, based on the employees’ skill.

Master Schedules Identify the Number of Required Employees continued • Forecasting other positions • Subtract servers’ cost from the dollars available for variable-cost employees. • Divide the result by the average wage per hour.

Validating the Master Schedule The labor percent forecasted by the master schedule must match company standards.

Creating the Crew Schedule • Include specific employee names and reporting times • Should be distributed well in advance • Must ensure balance and equity for all employees

Creating the Crew Schedule continued Goals of the crew schedule • Build flexibility. • Use accurate sales projections to ensure the right number of staff are assigned at the right times. • Consider legal restraints and company policies.

Factors Directly Affecting Labor Costs • Sales levels • Time tracking • Time sheets • Timecards • Advanced electronic methods • Schedules and schedule modifications • Overtime • Benefits offered • Labor contracts

Another Factor Directly Affecting Labor Costs • Employee turnover • The number of employees hired to fill one position in a year’s time

Another Factor Directly Affecting Labor Costs continued • Employee turnover example

Factors Indirectly Affecting Labor Costs • Adherence to Standards • Standards of employee performance are similar to standards of food quality. • Just as food standards can be quantified, so can worker productivity be quantified.

Some Productivity Standards

How Would You Answer the Following Questions? • Effective managers seek to closely monitor and thus regulate their restaurant’s (labor cost/labor cost percent). • Labor costs include only the wages and salaries paid directly to the employees. (True/False) • A master schedule includes all of the following except • Employee names • Days of the week • Employee shifts • Employee positions • Employee turnover rates cannot be influenced by managers. (True/False)

Budget Covers per server Crew schedule Employee benefits Employee turnover Federal Insurance Contributions Act (FICA) Job description Labor contract Key Term Review

Labor cost Labor cost percent Master schedule Medicare Overtime Payroll dollars Person-hour Productivity standard Quality standard Return chart Key Term Review continued

Chapter Learning Objectives—What Did You Learn? • Distinguish between fixed, variable, and semi-variable costs. • Explain how payroll cost, FICA, Medicare, and employee benefits make up labor cost. • Describe the components and factors to consider in the development of a master schedule. • Explain the difference between a master schedule and a crew schedule.

Chapter Learning Objectives—What Did You Learn? continued • List the factors that affect labor cost. • Explain how direct factors such as business volume affect labor cost. • Calculate turnover rate percentage, total dollars for labor costs, dollars available for scheduling, and hours available for scheduling. • Explain how indirect factors such as quality and productivity standards affect labor costs.

Controlling Labor Costs