Controlling Labor Costs

1
Controlling Labor Costs
9

• Controlling Foodservice Costs

OH 9-1
2
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.

3
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.

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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

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Fixed and Variable Payroll Costs
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Total Labor Cost Consists Of

• Pay
• Includes employees hourly wages
• Includes management salaries

• Other Payroll Costs
• Includes payroll taxes and assessments
• Includes benefits costs

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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

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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

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Payroll Taxes and Assessments continued

• Federal and state programs
• May be related to workers injury or compensation
  and/or unemployment insurance programs
• City or local programs
• May be related to taxes on gross payroll or other
  special assessments

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Common Employee Benefits

• Paid holidays
• Paid vacations
• Paid sick or personal days
• Health insurance

• Life insurance
• Disability insurance
• Dental insurance
• Vision insurance
• Company-funded retirement programs

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Labor Cost Percentage

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

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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.

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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
• Facilitys location
• Impact of holidays

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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.

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Creating Schedules continued

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

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Forecasting Labor CostsA Three Step Process

• Step 1 Determine total available labor dollars.
• Step 2 Subtract costs of employee benefits and
  taxes.

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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!
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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.

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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.

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Validating the Master Schedule

• The labor percent forecasted by the master
  schedule must match company standards.

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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

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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.

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Factors Directly Affecting Labor Costs

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

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Another Factor Directly Affecting Labor Costs

• Employee turnover
• The number of employees hired to fill one
  position in a years time

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Another Factor Directly Affecting Labor Costs
continued

• Employee turnover example

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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.

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Some Productivity Standards

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How Would You Answer the Following Questions?

• Effective managers seek to closely monitor and
  thus regulate their restaurants (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)

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Key Term Review

• Budget
• Covers per server
• Crew schedule
• Employee benefits
• Employee turnover

• Federal Insurance Contributions Act (FICA)
• Job description
• Labor contract

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Key Term Review continued

• Labor cost
• Labor cost percent
• Master schedule
• Medicare
• Overtime

• Payroll dollars
• Person-hour
• Productivity standard
• Quality standard
• Return chart

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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.

32
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.