controlling labor and other costs
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OH 9-1
Controlling Labor and Other Costs
9OH 9-1
OH 9-2
Learning ObjectivesAfter completing this chapter, you should be able to:
• Explain how payroll cost, FICA, Medicare, and employee benefits make up labor cost.• Explain the methods used to measure labor productivity.• Outline the steps involved in controlling labor costs.• Describe the components and factors to consider in thedevelopment of a master schedule.• Describe the methods used for managing payroll records.• Explain how managers can optimize labor productivity.
OH 9-3
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
OH 9-4
Fixed and Variable Payroll Costs
OH 9-5
Total Labor Cost Consists Of
Payroll Includes employee’s
hourly wages
Includes management salaries
Other Payroll Costs Includes payroll
taxes and assessments
Includes benefits costs
OH 9-6
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
OH 9-7
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
OH 9-8
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
OH 9-9
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
OH 9-10
OH 9-11
Labor Cost Percentage
Restaurant managers must relate the dollars spent for labor to the sales generated by those labor dollars.
Labor cost ÷ Sales = Labor cost
percent
OH 9-12
Estimated Daily Payroll Cost Percent
Step 1 – Divide weekly management cost by thenumber of days open per week todetermine 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 theestimated daily sales to determine the estimated daily payroll cost percent.
OH 9-13
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.
OH 9-14
Some Productivity Standards
OH 9-15
Additional Labor Productivity measures
OH 9-16
Additional Labor Productivity measures
OH 9-17
Steps to Controlling Labor Costs
OH 9-18
Labor Usage Forecasts
Forecasting Volume
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.
OH 9-19
Labor Usage Forecasts continued
Sales Projections An estimate of future sales
Include increases or decreases to historical sales patterns
Consider national and local economic trends
OH 9-20
Labor Usage Forecasts continued
Determine Labor Budget
Standard labor cost percentage should be based on many factors to include:
Menu items
Preparation and expertise required
Type of service
Location
OH 9-21
Labor Standard (budget)
OH 9-22
Forecasting Labor Costs—Calculating Labor Hours and Schedule
Step 1 – Determine total available labor dollars.
Step 2 – Subtract costs of employee benefitsand taxes.
Standard labor cost percent x Projected
sales = Dollars available for labor
Dollars available for labor
–
Benefits and taxes = Remaining payroll
available
OH 9-23
Forecasting Labor Costs—Calculating Labor Hours and Schedule
Step 3 – Subtract fixed labor costs.
Payroll dollars available – Fixed cost
salaries = Dollars available for variable-cost employees
Employee schedules are planned with this dollar amount to help ensure targeted labor costs are met!
OH 9-24
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.
Est. number of covers
÷
Number of service hours = Covers per hour
Covers per hour
÷
Covers per server = Number of servers
OH 9-25
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.
Dollars available for variable-cost employees
– Server cost = Dollars available
for other positions
Dollars available for other positions
÷Average wage per hour
= Number of hours available for other positions
OH 9-26
Master Schedule
OH 9-27
Master Schedules
OH 9-28
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
OH 9-29
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.
OH 9-30
Validating the Master Schedule
The labor percent forecasted by the master schedule must match company standards (budget).
Fixed payroll + Variable
payroll = Total payroll
Total payroll + Taxes and
benefits = Total labor cost
Total labor ÷ Sales = Total labor cost percent
OH 9-31
Factors Directly Affecting Labor Cost Control Sales levels
Time tracking Time sheets Timecards Advanced electronic methods
Schedules and schedule modifications
Overtime
Benefits offered
Labor contracts
OH 9-32
Another Factor Directly Affecting Labor Costs
Employee turnover The number of employees hired to fill one position in
a year’s time
Persons hired per year ÷ Average number
of employees = Turnover
Turnover x 100 = Turnover rate percent
OH 9-33
Another Factor Directly Affecting Labor Costs continued
Employee turnover example
300 hired ÷ 100 needed = 3
3 x 100 = 300%
OH 9-34
Reasons for Employee Turnover Lack of recognition
Lack of teamwork
Lack of control
Quality of life issues
Stress
Poor communication
Poor recruiting
Lack of leadership
Lack of training
No opportunities for advancement
Lack of benefits
Lack of standards
Working conditions
OH 9-35
How Would You Answer the Following Questions?
1. Effective managers seek to closely monitor and thus regulate their restaurant’s (labor cost/labor cost percent).
2. Labor costs include only the wages and salaries paid directly to the employees. (True/False)
3. A master schedule includes all of the following exceptA. Employee namesB. Days of the weekC. Employee shiftsD. Employee positions
4. Employee turnover rates cannot be influenced by managers. (True/False)
OH 9-36
How Would You Answer the Following Questions?
5. A manager promised the owner to reduce the turnover rate from 200% to 150% per year. If the restaurant has 160 employees on average per year and a new hire costs an average of $500 to recruit, hire and train, how much money will the manager save the restaurant owner with the lower turnover?
a) $4,000
b) $40,000
c) $80,000
d) Not enough information is given
OH 9-37
How Would You Answer the Following Questions?
6. What is the primary tool managers have to control labor costs?
a) employee turnover
b) overtime
c) labor cost percentage
d) the schedule
OH 9-38
How Would You Answer the Following Questions?
6. What is the primary tool managers have to control labor costs?
a) employee turnover
b) overtime
c) labor cost percentage
d) the schedule
OH 9-39
How Would You Answer the Following Questions?
7. Labor costs are the sum of which two categories of costs?
a) Insurance & taxes
b) Wages & salaries
c) Fixed and semivariable costs
d) Payroll & employee benefits
OH 9-40
Chapter 9 Controlling Labor and Other CostsChapter 9 Controlling Labor and Other Costs
Key Terms:Covers per server The number of customer meals that a waitstaff member can serve in an hour.Crew schedule A chart that shows employees’ names and the days and times that they are to work.Employee turnover The number of employees hired to fill one position in a year’s time.Federal Insurance Contributions Act (FICA) A program that sets aside money for Social Security payments, which is paid for by employers andemployees through payroll deductions.Fringe benefits Benefits provided by an employer that have monetary value but do not affect an employee’s basic wage rate, such as paid holidays or paid vacation.Labor contract An agreement between management and a union that represents the employees and that deals with wages, employee benefits, hours, and working conditions.
OH 9-41
Chapter 9 Controlling Labor and Other CostsChapter 9 Controlling Labor and Other Costs
Key Terms continued:Master schedule A template, usually a spreadsheet, showing the
number of people needed in each position to run the restaurant or foodservice operation.Medicare Contributions from payroll set aside for health benefits for people age 65 or older and for individuals with certain disabilities.Overtime Any hours worked by nonmanagement employees beyond 40 hours in a workweek, by law compensated at a rate of at least 1.5 times the employee’s regular rate of pay.
Productive Producing or capable of producing an effect or result.
Payroll dollars The amount of money available for payroll for a scheduling period.
Productivity standard A level set by managers to measure the amount of work performed by an employee.
OH 9-42
Chapter 9 Controlling Labor and Other CostsChapter 9 Controlling Labor and Other Costs
Key Terms continued:Quality standard A standard that refers to weight, count, or volume
measure, such as portion sizes for menu foods and beverages, and employee production standards such as one cook per 50 covers.Sales per labor hour A number calculated by adding all the sales for a specific period (hour, day, week, etc.) and then dividing the total by the total number of labor hours used during the same time period.Standard man-hours (SMH) The number of employee work hours necessary in each job category to perform a given volume of forecasted production.
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