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 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 workers are 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 LaborBureau of Labor Statistics, 2008

Median Salary by Years Experience Job: Restaurant Manager

Restaurant Managers with 5-9 years experience canexpect 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

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

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

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

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 Cost is generally the inverse of COGS

Hi Labor Lo COGLo COG Hi Labor

Tot. Labor Cost% = Tot. Labor (include

benefits) $Total Sales

Labor Classifications

Fixed Labor CostsSalaried employees whose cost doesn’t fluctuate with salesConsidered a “non-controllable” cost

Variable Labor Costs

Hourly employees whose hours/wages can vary with sales

PERSONNEL TURNOVER

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

Improper Training/CommunicationIf 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 & HiringTrainingUnemployment InsurancePotential customer dissatisfaction

PAYROLL BUDGET

Forecast Sales based on available data:

Historical dataReservationsPast Performance during Special EventsCatering 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/dinnerSlow hours that still need staffing

OVERTIME VS. PART-TIME

OVERTIME PART-TIME Time and ½ No benefits

May be after 40 hr. weekMay 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 philosophyif they earn less than $23,660/yr.

Have less motivation to show upwhen needed because they have

less to lose

LABOR COST & LABOR %ANALYSIS HOUR BY HOUR TO DETERMINE PROFITABILITY

• .

FOOD LABOR $TOT. %LAB.HOUR COST COST BENE. SALES LABOR COST PROFIT

1 100 100 10 2002 200 100 10 4003 200 200 25 4004 300 150 10 700

TOTAL

LABOR ANALYSISCOST OF VARIANCES vs. BUDGET

• .

BUDGET ACTUAL COST OF RATE TOTALHOURS HRS. VARIANCE VARIANCE PER HR. PAY

DISHWASHERS 35 35 $6.50COOKS 50 55 $12.00

SERVERS 40 43 $3.25BUSERS 15 12 $5.35

MANAGEMENT 16 20 $18.00TOTALS/AVGS.

LABOR SAVINGS STRATEGIES

TechnologyLabor saving equipmentPre-prepped, pre-cooked, pre-portioned

Facility DesignCommissary preparation for multi-unit operationWell designed kitchen that allows more work more easily

Menu DesignFewer items require fewer employeesLimited menu requires less trainingSimply executed dishes require less skill/experienced workers

Style of ServiceFine dining requires trained, skilled staffCasual dining requires less skilled staffSelf-serve or Cafeteria service requires fewer staffTake out requires no service staff

OUTSOURCING

Outsourcing is the fastest growing labor cost savings trend in the hospitality industry.

HR (recruiters and payroll companies) AdvertisingFinance Pre-prepared foodsWaste Disposal Bakery ServicesLinens Food service operationsPest Control

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

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 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 sothey 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 employeeThe 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.”

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

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

Company PhilosophyGetting employees to “buy in”On-the-Job Training

On going training—New technologyChanges in policyChanges 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

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

Financial Rewards:BonusesComp TimeAdded Benefits

Non-Financial Rewards:

Open Door policy with managementPositive, Comfortable work environmentFlexible SchedulingRespect from Management

Productivity Quantitative Measures of Productivity:

Count of items completed Covers per shiftSales per Hour Rooms cleaned per shift/per hr.Guests checked in

Qualitative Measures of Productivity:Mystery Shoppers ReviewsCustomer Satisfaction Surveys Industry Recognition Government Reports

Correcting Mistakes: 1. Identify the problem2. Create process to correct it3. Train staff in the new process

4. Discipline

OTHER EXPENSES

• Identify controllable & non-controllable costs associated

restaurant operationbusiness operationfacilities

occupancy

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 EXPENSES

Every area of Expense needs standards

1. Quality2. Quantity3. Cost

All standards should be customer based

Linens Music & EntertainmentFlatware MarketingCleaning Supplies LicensesUtilities Product TestingMenus Franchise Fees

FACILITY COST SAVING STRATEGIESStrategies

Furniture, Fixtures and Equipment

UsedAuctionsRehabedDemo/Floor models

Lifetime Costs—may make an expensive purchase more practical

Trade-in valueDelivery costsOperating costs (consider energy savings)Operating Labor

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

LEASE vs. OWN

Lease/Rent

Fixed lease/rent rate vs. Lease + % of SalesFixed lease rate with an increase over time

Own

Pros: Property Taxes and Mortgage Interest Write-offsCons: Maintenance & Upkeep Costs

Facility Costs

INSURANCE

Property & Liability Insurance

Flood Insurance

Catering Insurance for Off-Site Operation may be incrementalbut 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 & HVACLighting and SecurityWindowsSignage

TAXES & LEGISLATION

1. Local

Smoking RestrictionsEntertainment Taxes

2. State

Dram LawsBlood Alcohol Levels

3. Federal

Minimum Wage LawsFood Standards