Chapter 7 - Managing the cost of labor. This chapter presents the following content: Labor expense in the hospitality industry, evaluating labor productivity, maintaining a productive workforce, measuring current labor productivity, managing payroll costs, reducing labor-related costs, technology tools.
Chapter 7 Managing the Costs of Labor © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Main Ideas Labor Expense in the Hospitality Industry Assessing Labor Productivity Maintaining a Productive Workforce Measuring Current Labor Productivity Managing Payroll Costs Reducing LaborRelated Costs Technology Tools © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Labor Expense in the Hospitality Industry In today’s market, labor is so expensive. Methods must be used to accomplish necessary tasks and stay within the allotted labor budget In some foodservice establishments, the cost of labor actually exceeds the cost of food and beverage products © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Labor Expense in the Hospitality Industry Labor Expense includes salaries and wages, but it consists of other laborrelated costs as well FICA taxes, unemployment taxes, worker’s compensation, group life insurance, health insurance, pension plan payments, employee meals, employee training, employee transportation, employee uniforms, employee housing, vacation/sick leave, tuition reimbursement programs, and employee incentives and bonuses © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Labor Expense in the Hospitality Industry Payroll refers to the gross pay received by an employee in exchange for his or her work A salaried employee receives the same income per week or month regardless of the number of hours worked Payroll is one part of labor expense © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Labor Expense in the Hospitality Industry Minimum staff is used to designate the least number of employees, or payroll dollars, needed to operate a facility or department within the facility Fixed Payroll refers to the amount an operation pays in salaries Variable Payroll consists of those dollars paid to hourly employees Do not confuse minimum staff with fixed and variable payroll © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Labor Expense in the Hospitality Industry Management has little control over fixed labor expense, but nearly 100% control over variable labor expense Labor expense refers to the total of all costs associated with maintaining a foodservice workforce Total labor expense will always exceed that of payroll © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Labor Expense in the Hospitality Industry Payroll is considered a “controllable” labor expense, unlike FICA taxes and insurance premiums But, in reality, managers may even be able to influence some of the noncontrollable labor expenses, such as providing a training program to reduce injuries and insurance premiums © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Assessing Labor Productivity Productivity is the amount of work performed by an employee in a fixed period of time There are many ways to assess labor productivity. In general, productivity is measured in terms of the productivity ratio as follows: Output Input © 2011 John Wiley & Sons =Productivity Ratio Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Maintaining a Productive Workforce 10 Key Factors Affecting Employee Productivity Employee Selection Training Supervision Scheduling Breaks Morale Menu Convenience vs. Scratch Preparation Equipment/Tools Service Level Desired © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 7.23 Weekly Labor Hour Budget for Geier Hall Day Total Forecasted Number of Guests Served 3,000 2,900 2,900 2,850 3,000 2,700 2,650 20,000 Guests Served per Labor Hour Standard 30 guests/hour 30 guests/hour 30 guests/hour 30 guests/hour 30 guests/hour 30 guests/hour 30 guests/hour 30 guests/hour Labor Hour Budget 100.0 96.7 96.7 95.0 100.0 90.0 88.3 666.7 Figure 7.24 Recap of Percentage of Total Usage by Category Geier Hall Labor Category Production Service Management Total % of Total 60% 30 10 100 © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 7.25 Recap of Guests Served per Labor Hour Geier Hall Labor Category Production Service Management Total © 2011 John Wiley & Sons Forecasted Number of Guests Served 3,000 3,000 3,000 3,000 Labor Hour Standard 60 30 10 100 Budgeted Guests Served per Labor Hour 50 100 300 30 Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Managing Payroll Costs Because employee schedules are based upon the number of hours to be worked or dollars spent, an employee schedule recap form can be an effective tool in a daily analysis of labor productivity Since labor is purchased on a daily basis, labor costs should be monitored on a daily basis © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 7.26 Employee Schedule Unit Name: Geier Hall Labor Category: Production Employee Name Sally S * Tom T * Steve J * Abhijit S * Janice J Susie T Peggy H Marian D Larry M * Ahmed D * Shift: A.M & P.M Schedule 6:00 a.m - 2:30 p.m 6:30 a.m - 3:00 p.m 8:00 a.m - 4:30 p.m 10:00 a.m - 6:30 p.m 7:00 a.m - 11:00 a.m 6:30 a.m - 10:30 a.m 10:30 a.m - 1:30 p.m 2:00 p.m - 5:00 p.m 11:00 a.m - 7:30 p.m 1:00 p.m - 7:30 p.m Total *Includes 30-minute meal break © 2011 John Wiley & Sons Date: Monday 1/1 Labor Budget: 60 hours Hours Scheduled 8 8 4 3 60 Rate N/A Total Cost N/A N/A N/A Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Managing Payroll Costs Some foodservice managers practice an oncall system whereby employees who are off duty are assigned to oncall status Other managers practice a callin system. In this arrangement, employees who are off duty are required to check in with management on a daily basis to see if the predicted sales volume is such that they may be needed Schedule modifications should be done hourly, if necessary It is critical to match labor usage with projected volume © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Managing Payroll Costs Analyze results To complete the job of managing laborrelated expense, you should analyze your results by comparing actual labor cost to budgeted labor cost Actual Amount Budgeted Amount = % of Budget © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Managing Payroll Costs Standard cost, that is the labor cost needed to meet established productivity standards, rather than “budgeted cost.” In the case of labor, we may still be within reasonable budget, though we may vary greatly from the standard For this reason, the authors prefer the term budgeted labor rather than standard labor. Labor standards will always vary a bit unless guest counts can be predicted perfectly which, of course, is rarely the case © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 7.27 Labor Recap for Lillie's Actual versus Budgeted Labor Cost Sales Budgeted Actual % of Budget $6,550 6,850 6,000 8,100 27,500 $6,400 7,000 6,000 7,600 27,000 98% 102 100 94 98 Week Total Labor Cost Labor Cost % Budgeted Actual % of Budget Budgeted Actual $1,965 2,055 1,800 2,430 8,250 $1,867 2,158 1,980 2,430 8,435 95% 105 110 100 102 30% 30 30 30 30 29% 31 33 32 31 © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Reducing LaborRelated Costs If management finds that labor costs are too high, problem areas must be identified and corrective action must be taken Ways to reduce fixed labor costs include; improve productivity, increase sales volume, combine jobs to eliminate fixed positions, and reduce wages paid to the fixed payroll employees Ways to reduce variable labor costs include; improve productivity, schedule appropriately to adjust to changes in sales volume, combine jobs to eliminate variable positions, and reduce wages paid to the variable employees © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Reducing LaborRelated Costs One way to increase productivity and reduce laborrelated expense is through employee empowerment, involving employees in the decisionmaking process Today, employees have come to realize there is more to life than work. Management, unable to always offer more money, has been forced to come up with new incentives Employees are seeking job satisfaction in addition to salaries or wages © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Reducing LaborRelated Costs Consumers are increasingly aware that when they support businesses committed to sustainability, their dollars impact social and environmental concerns On average, they are willing to spend 20% more than the typical guest for products that meet their values and lifestyle In a similar manner, environmentally conscious workers are increasingly becoming aware that a company’s care for the environment most often is also reflected in care for its employees © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 7.28: Ten-Point Labor Schedule Checklist 10 Monitor historical operational data (or alternative data if historical data are not available) Identify productivity standards Forecast sales volume Determine budgeted labor dollars or hours Divide monthly budget into weekly budgets Divide weekly budget into daily budgets Segment daily budget into meal period budgets Build schedule based on the budget Analyze service levels during schedule period Reassess and adjust productivity standards as needed Figure 7.29 Reducing Labor-Related Expenses Labor Category Fixed Variable 4 © 2011 John Wiley & Sons Actions Improve worker productivity Increase sales volume Combine jobs to eliminate fixed positions Reduce wages paid to the fixed-payroll employees Improve worker productivity Schedule appropriately to adjust to changes in sales volume Combine jobs to eliminate variable positions Reduce wages paid to the variable employees Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Technology Tools Current software programs can help you manage and control labor costs including the following tasks: Maintain employment records Conduct and record the results of online or computer based training programs Compute voluntary and involuntary employee turnover rates by department Track employees lost days due to injury/accident Maintain employee availability records (requested days off, vacation, etc) © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Technology Tools Develop employee schedules and interface employee schedules with time clock systems Monitor overtime costs Maintain job descriptions and specifications Develop and maintain daily, weekly, and monthly productivity reports 10 Interface employee scheduling component with forecasted sales volume software © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Summary Labor Expense in the Hospitality Industry Assessing Labor Productivity Maintaining a Productive Workforce Measuring Current Labor Productivity Managing Payroll Costs Reducing LaborRelated Costs Technology Tools © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller ... Cost of Labor $ 7, 100 8,050 7, 258 6,922 29,330 Guests Served 920 1, 075 955 1,240 4,190 Labor Dollars per Guest Served $ 7. 72 7. 49 7. 60 5.58 7. 00 © 2011 John Wiley & Sons Food? ?and? ?Beverage? ?Cost? ?Control, 5th ... © 2011 John Wiley & Sons Food? ?and? ?Beverage? ?Cost? ?Control, 5th Edition Dopson, Hayes,? ?& Miller Figure 7. 8 Week Total Roderick's 4-Week Revised Labor Cost % Report Cost of Labor $ 7, 100 8,050 7, 258 6,922 29,330... sixcolumn form with? ?cost? ?of labor, sales,? ?and? ?labor cost? ?% © 2011 John Wiley & Sons Food? ?and? ?Beverage? ?Cost? ?Control, 5th Edition Dopson, Hayes,? ?& Miller Figure 7. 15 Six-Column Labor Cost % Unit Name: