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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.

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labor costs controls
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
labor cost control know your target audience
LABOR COST CONTROLKnow Your Target Audience

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

median salary by years experience job restaurant manager
Median Salary by Years Experience Job: Restaurant Manager

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

www.payscale.com

median salary by years experience job executive chef
Median Salary by Years Experience Job: Executive Chef

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.

www.payscale.com

median salary by years experience job sous chef
Median Salary by Years Experience Job: Sous Chef

Sous Chefs with 5-9 years experience will earn about $13.50 to $17 per hour for a 50 hour week.

www.payscale.com

median salary by years experience job pastry chef
Median Salary by Years Experience Job: Pastry Chef

Pastry Chefs with 5-9 years experience will earn about $13.50 to $17 per hour for a 50 hour week.

www.payscale.com

median salary by years experience job line cook
Median Salary by Years Experience Job: Line Cook

Line cooks will earn an average $15 an hour once they have put in 20 years on the job for a 45 hour week.

www.payscale.com

labor costs
LABOR COSTS

Labor Cost is generally the inverse of COGS

Hi Labor Lo COG

Lo COG Hi Labor

Tot. Labor Cost% = Tot. Labor (include benefits)

$Total Sales

labor classifications
Labor Classifications

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

personnel turnover
PERSONNEL TURNOVER

One of the major factors driving labor costs in the foodservice industry is high turnover

Improper Training/Communication

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

Training

Unemployment Insurance

Potential customer dissatisfaction

payroll budget
PAYROLL BUDGET

Forecast Sales based on available data:

Historical data

Reservations

Past Performance during Special Events

Catering Bookings (past and current)

Predictions based on expansions/upgrades

Per-employee performance

# 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

overtime vs part time
OVERTIME VS. PART-TIME

OVERTIMEPART-TIME

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 savings strategies
LABOR SAVINGS STRATEGIES

Technology

Labor saving equipment

Pre-prepped, pre-cooked, pre-portioned

Facility Design

Commissary preparation for multi-unit operation

Well designed kitchen that allows more work more easily

Menu Design

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
OUTSOURCING

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

Pest Control

compensation
COMPENSATION

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

labor cost control
LABOR COST CONTROL

Performance & Productivity Standards should be established for each position.

Task Analysis

What needs to be done?

When should it be done?

How should it be done?

labor costs1
Labor Costs

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

you can get it done fast cheap and right but you only get two out of three at the same time
“You can get it done fast, cheap and right but you only get two out of three at the same time.”

Quality Standards

Should relate directly to the target audience—the concept and positioning of the establishment will dictate the level of expertise needed for each employee

Quantity Standards

Amount of work each employee is expected to manage during a particular timeframe

Cost Standard

Influenced greatly by local laws, government, labor unions and supply and demand

job description
JOB DESCRIPTION

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
TRAINING

Training is an investment. It is key to reducing employee turnover.

Company Philosophy

Getting employees to “buy in”

On-the-Job Training

On going training—

New technology

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

motivation
MOTIVATION

Get employees to “buy in” to the company philosophy and lower turnover will follow.

Financial Rewards:

Bonuses

Comp Time

Added Benefits

Non-Financial Rewards:

Open Door policy with management

Positive, Comfortable work environment

Flexible Scheduling

Respect from Management

productivity
Productivity

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

Government Reports

Correcting Mistakes:

1. Identify the problem

2. Create process to correct it

3. Train staff in the new process

4. Discipline

other expenses
OTHER EXPENSES
  • Identify controllable & non-controllable costs

associated

restaurant operation

business operation

facilities

occupancy

other expenses1
OTHER EXPENSES

Every area of Expense should have standards set for it in order to control costs—Quality, Quantity, Cost.

All standards should be customer based.

Linens Menus

Flatware Music & Entertainment

Cleaning Supplies Utilities

Franchise Fees Licenses

Marketing Product Testing

other expenses2
OTHER EXPENSES

Every area of Expense needs standards

1. Quality

2. Quantity

3. Cost

All standards should be customer based

Linens Music & Entertainment

Flatware Marketing

Cleaning Supplies Licenses

Utilities Product Testing

Menus Franchise Fees

facility cost saving strategies strategies
FACILITY COST SAVING STRATEGIESStrategies

Furniture, Fixtures and Equipment

Used

Auctions

Rehabed

Demo/Floor models

Lifetime Costs—may make an expensive purchase more practical

Trade-in value

Delivery costs

Operating costs (consider energy savings)

Operating Labor

facility costs
Facility Costs

Strategies for Savings:

One brand/vendor

Equipment free with Ingredient Contract (i.e. coffee and soft drink machines)

Maintenance through the vendor

occupancy
OCCUPANCY

LEASE vs. OWN

Lease/Rent

Fixed lease/rent rate vs. Lease + % of Sales

Fixed lease rate with an increase over time

Own

Pros: Property Taxes and Mortgage Interest Write-offs

Cons: Maintenance & Upkeep Costs

facility costs1
Facility Costs

INSURANCE

Property & Liability Insurance

Flood Insurance

Catering Insurance for Off-Site Operation may be incremental

but can be added on a “one time only” basis—“riders”

BUILDING MAINTENANCE

Landscaping—outsourced labor, water costs, etc.

Plant maintenance—parking lot, roof, general repair, plumbing & HVAC

Lighting and Security

Windows

Signage

taxes legislation
TAXES & LEGISLATION

1. Local

Smoking Restrictions

Entertainment Taxes

2. State

Dram Laws

Blood Alcohol Levels

3. Federal

Minimum Wage Laws

Food Standards