LABOR COSTS & CONTROLS. FIXED vs VARIABLE LABOR COSTS HIGH TURNOVER, CAUSES & DETERENTS SAVING ON LABOR FORECASTING LABOR COSTS COMPENSATION TECHNIQUES LABOR STANDARDS: QUALITY, QUANTITY, COST JOB ANALYSIS vs. JOB DESCRIPTION CORRECTIVE POLICIES.
Food services and drinking places pay mean average wages that are roughly half the national mean wage--$9.84 vs $20.32 (May 2008).
The industry’s low average wage is due to two factors: 1) below-average wage rates for individual occupations and 2) the industry’s occupational mix
The main reason is the predominance of low paying and low skilled occupations--97% of industry employment was in occupations with mean wages below the national mean wages.
Food preparation & serving workersare 23 percent of industry with a mean hourly wage of $8.07.
The waiters and waitresses, are 21 percent of employment with a mean hourly wage of $9.26, including tips.
The highest paying positions in the industry are Food Service Mgrs., General Mgr., Operations Mgr.
Highly paid non-management occupations comprise a very small portion of the industry—
dietitians and nutritionists @ $22.59, about .04 percent of industry
sales representatives, services--hourly mean wage of $27.42, about .03%.
U. S. Department of Labor
Bureau of Labor Statistics, 2008
Restaurant Managers with 5-9 years experience can
expect earn between $35-$45,000, roughly $16.80 to
$21.60 an hour, calculated on a 40 hour week*
*A 40-hr. week is probably unrealistic
Executive Chefs with 10-20 years experience can expect to earn between $45-$65,000 a year. Calculated on a 50 hour week, which is standard, they will be earning between $17 and $25 per hour.
Sous Chefs with 5-9 years experience will earn about $13.50 to $17 per hour for a 50 hour week.
Pastry Chefs with 5-9 years experience will earn about $13.50 to $17 per hour for a 50 hour week.
Line cooks will earn an average $15 an hour once they have put in 20 years on the job for a 45 hour week.
Labor Cost is generally the inverse of COGS
Hi Labor Lo COG
Lo COG Hi Labor
Tot. Labor Cost% = Tot. Labor (include benefits)
Fixed Labor Costs
Salaried employees whose cost doesn’t fluctuate with sales
Considered a “non-controllable” cost
Variable Labor Costs
Hourly employees whose hours/wages can vary with sales
One of the major factors driving labor costs in the foodservice industry is high turnover
If personnel don’t know and understand the objectives of the organization, it is difficult to attain them
“Advancement in the foodservice industry is slowing all the time because companies don’t train and don’t provide a pathway to advancement.”
Cost of Turnover
Recruiting & Hiring
Potential customer dissatisfaction
Forecast Sales based on available data:
Past Performance during Special Events
Catering Bookings (past and current)
Predictions based on expansions/upgrades
# of meals served per cook
# of tables served per wait staff
# of drinks per bartender
Work flow projections based on hours of business
Peaks during lunch/dinner
Slow hours that still need staffing
Time and ½ No benefits
May be after 40 hr. week
May be after 8 hr. day Typically less skilled/less pay
Benefits required for full-time May not reach the standards set
because they may not buy into
Applies to some salaried employees the company philosophy
if they earn less than $23,660/yr.
Have less motivation to show up
when needed because they have
less to lose
Labor saving equipment
Pre-prepped, pre-cooked, pre-portioned
Commissary preparation for multi-unit operation
Well designed kitchen that allows more work more easily
Fewer items require fewer employees
Limited menu requires less training
Simply executed dishes require less skill/experienced workers
Style of Service
Fine dining requires trained, skilled staff
Casual dining requires less skilled staff
Self-serve or Cafeteria service requires fewer staff
Take out requires no service staff
Outsourcing is the fastest growing labor cost savings trend in the hospitality industry.
HR (recruiters and payroll companies) Advertising
Finance Pre-prepared foods
Waste Disposal Bakery Services
Linens Food service operations
Current Compensation--paid within a short timeframe (i.e. pay check)
Deferred Compensation—expenses that are shown as current expenses, but are not paid until the employee is eligible (i.e. pensions, stock options)
Direct Compensation—money given to the employee in a paycheck
Indirect Compensation--payroll taxes, social security (6.2%), medicare (1.45%), health insurance (8-10%), paid vacation, retirement plans , discounts
Performance & Productivity Standards should be established for each position.
What needs to be done?
When should it be done?
How should it be done?
What can be successfully outsourced
Cost-Benefit Analysis compares the cost of doing the task in-house vs. buying it from an outside source
Specifications should be sent to all potential suppliers so
they are bidding on the same job
Multiple bids should be obtained to get the best cost
Job Specifications are needed for each job
Detail all work to be accomplished by the employee
The more detail, the better guidance for those hiring
Should relate directly to the target audience—the concept and positioning of the establishment will dictate the level of expertise needed for each employee
Amount of work each employee is expected to manage during a particular timeframe
Influenced greatly by local laws, government, labor unions and supply and demand
Outline the job specifics (i.e. % of time expected to spend cleaning and stocking shelves vs. cooking/prepping)
Where and when will each task be executed (i.e. will spend a minimum of 1 hour daily in a freezer at 0 degrees)
Provide measurable performance criteria (i.e. expected to learn how to set up the cold station within the first week of employment)
Provide information on the company philosophy and mission (i.e. each team member is regarded as an integral part of the decision- making team in his department and will be encouraged to be pro- active in making positive changes)
Training is an investment. It is key to reducing employee turnover.
Getting employees to “buy in”
On going training—
Changes in policy
Changes in Menu
Cross training for another position—this is an important way to cut down overtime and to give employees a pathway to advancement
Get employees to “buy in” to the company philosophy and lower turnover will follow.
Open Door policy with management
Positive, Comfortable work environment
Respect from Management
Quantitative Measures of Productivity:
Count of items completed Covers per shift
Sales per Hour Rooms cleaned per shift/per hr.
Guests checked in
Qualitative Measures of Productivity:
Mystery Shoppers Reviews
Customer Satisfaction Surveys Industry Recognition
1. Identify the problem
2. Create process to correct it
3. Train staff in the new process
Every area of Expense should have standards set for it in order to control costs—Quality, Quantity, Cost.
All standards should be customer based.
Flatware Music & Entertainment
Cleaning Supplies Utilities
Franchise Fees Licenses
Marketing Product Testing
Every area of Expense needs standards
All standards should be customer based
Linens Music & Entertainment
Cleaning Supplies Licenses
Utilities Product Testing
Menus Franchise Fees
Furniture, Fixtures and Equipment
Lifetime Costs—may make an expensive purchase more practical
Operating costs (consider energy savings)
Strategies for Savings:
Equipment free with Ingredient Contract (i.e. coffee and soft drink machines)
Maintenance through the vendor
LEASE vs. OWN
Fixed lease/rent rate vs. Lease + % of Sales
Fixed lease rate with an increase over time
Pros: Property Taxes and Mortgage Interest Write-offs
Cons: Maintenance & Upkeep Costs
Property & Liability Insurance
Catering Insurance for Off-Site Operation may be incremental
but can be added on a “one time only” basis—“riders”
Landscaping—outsourced labor, water costs, etc.
Plant maintenance—parking lot, roof, general repair, plumbing & HVAC
Lighting and Security
Blood Alcohol Levels
Minimum Wage Laws