2 Chapter Learning Objectives Distinguish between fixed, variable, and semivariable costs.Explain how payroll cost, Federal Insurance Contribution Act (FICA), Medicare, and employee benefits make up labor cost.Describe the components and factors to consider in the development of a master schedule.Explain the difference between a master schedule and a crew schedule.Instructor’s NotesIndicate that these objectives (competencies) drive the information in the chapter and in this session.
3 Chapter Learning Objectives continued List the factors that affect labor cost.Explain how direct factors, such as business volume, affect labor cost.Calculate turnover rate percentage, total dollars for labor costs, dollars available for scheduling, and hours available for scheduling.Explain how indirect factors, such as quality and productivity standards, affect labor costs.Instructor’s NotesIndicate that these objectives (competencies) drive the information in the chapter and in this session.
4 Types of Costs Fixed costs Variable costs Semivariable costs Stay the same regardless of increases or decreases in volumeVariable costsIncrease or decrease with increases or decreases in volumeSemivariable costsPart fixed and part variable; also increase or decrease (but at a slower rate) with increases or decreases in volumeInstructor’s NotesAsk students to identify some fixed, variable, and semivariable costs. Examples could beFixed—rent, insurance, property taxesVariable—food and liquor productsSemivariable—salaries (because with a large enough increase or decrease in volume, salaried employees are added or reduced from payrolls), and hourly labor costs.Point out that in most cases, variable and semivariable costs are controlled by the manager.
5 Fixed and Variable Payroll Costs Instructor’s NotesLabor costs are semivariable. For example, the number of servers and cooks needed will vary as volume increases or decreases. In most cases, however, management staff will remain the same unless there are large changes in volume. Therefore, these variable and fixed costs, taken together, result in a semivariable cost that managers must control.
6 Total Labor Cost Consists Of PayIncludes employee’s hourly wagesIncludes management salariesOther Payroll CostsIncludes payroll taxes and assessmentsIncludes benefits costsInstructor’s NotesExplain that a restaurant’s total labor cost includes much more than the wages and salaries paid to its employees.Indicate that, in many cases, employee benefits and payroll-related taxes can boost a restaurant’s labor cost 20% or more above its actual wages and salary costs. If the restaurant is unionized, these additional costs may be even higher.Ask students to identify some benefits they have received as part of their own employment packages. Examples could include paid holidays, paid sick leave, and employee meals. Ask them to estimate the cost to the restaurant of providing these benefits.
7 Payroll Taxes and Assessments Federal Insurance Contribution Act (FICA)Federal retirement and medical benefit programPaid through payroll taxesIncludes contributions from employees and employersCurrently set at a 6.2% employee/employer matchInstructor’s NotesExplain to students that a 6.2 percent match means that the employee and the employer must each pay 6.2% of the employee’s gross pay into the program.
8 Payroll Taxes and Assessments continued MedicareFederal health-care programPaid through payroll taxesIncludes contributions from employees and employersCurrently set at a 1.5% matchInstructor’s NotesExplain that a 1.5 percent match means that the employee and employer must each pay 1.5 percent of the employee’s gross pay into the program.Point out that the employer’s share of contributions for FICA and Medicare equals 7.7 percent (6.2 percent +1.5 percent = 7.7 percent) of a restaurant’s wages and salaries costs.
9 Payroll Taxes and Assessments continued Federal and state programsMay be related to worker’s injury or compensation and/or unemployment insurance programsCity or local programsMay be related to taxes on gross payroll or other special assessmentsInstructor’s NotesExplain that managers must be aware of the applicable taxes to be collected in the specific area in which the restaurant is located.
10 Common Employee Benefits Paid holidaysPaid vacationsPaid sick or personal daysHealth insuranceLife insuranceDisability insuranceDental insuranceVision insuranceCompany-funded retirement programsInstructor’s NotesPoint out that not all restaurants offer all of the above employee benefits.Explain that most restaurants also offer free or reduced-priced employee meals.Ask students how important they believe benefit programs are to attracting the best workers in the local labor market.Ask students if, when applying for a job, they inquire about job-related benefits (or do they ask about their wage rate only).
11 Labor Cost PercentageRestaurant managers must relate the dollars spent for labor to the sales generated by those labor dollars.Labor cost÷Sales=Labor cost percentInstructor’s NotesPoint out that labor cost percentage expresses the relationship between the dollars spent on labor in a specific time period and the sales generated by the restaurant in the same time period.
12 Estimated Daily Payroll Cost Percent Step 1 – Divide weekly management cost by the number of days open per week to determine 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 the estimated daily sales to determine the estimated daily payroll cost percent.Instructor’s NotesExplain that, in Step 1, management includes the cost of all fixed salary employees (i.e., bookkeepers, account clerks) and kitchen and dining room managers.In Step 2, note that the estimate of labor usage must be based upon an estimated level of food sales.Remind students that the operation’s actual payroll percentage will include all taxes and benefit costs as well as the amount of wages and salaries paid to employees.
13 Budget as Cost Control Tool Budgets help control spending. They are best prepared after evaluatingMenu items to be servedExpertise needed to execute the menuMethods of food preparationType of serviceFacility’s locationImpact of holidaysInstructor’s NotesAsk students if they use personal budgets to help them plan their own spending.Explain that following a budget is a major responsibility of managers.Ask students to identify some special events in their own area that would affect a manager’s budget estimates. Examples might include annual sporting events or festivals in the area.
14 Creating Schedules Perform historic sales analysis with Yearly and monthly data from past income statementsHourly, daily, and weekly point-of-sale (POS) dataIf no POS is available, undertake a guest check analysis.Instructor’s NotesExplain that historical sales records are important because, in most cases, the best predictor of future restaurant sales is found in an analysis of the restaurant’s previous sales.
15 Creating Schedules continued Sales ProjectionsAn estimate of future salesInclude increases or decreases to historical sales patternsConsider national and local economic trendsInstructor’s NotesAsk students where they would look for information about national sales trends experienced by different restaurant industry segments.
16 Forecasting Labor Costs— A Three Step Process Step 1 – Determine total available labor dollars.Step 2 – Subtract costs of employee benefits and taxes.Standard labor cost percentxProjected sales=Dollars available for laborInstructor’s NotesExplain that the standard labor cost percentage is established by management or the restaurant’s owners.Indicate that payroll costs include the amount of wages and salaries paid, AND the cost of employee benefits and applicable taxes.Dollars available for labor–Benefits and taxes=Remaining payroll available
17 Forecasting Labor Costs Step 3 – Subtract fixed labor costs.Payroll dollars available–Fixed cost salaries=Dollars available for variable-cost employeesEmployee schedules are planned with this dollar amount to help ensure targeted labor costs are met!Instructor’s NotesExplain that managers must be aware of how much they are actually spending when they create employee schedules.Point out the importance of maintaining control of fixed labor costs (salaries) and variable labor costs (wages).
18 Master Schedules Identify the Number of Required Employees Forecasting serversDivide 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 hourInstructor’s NotesPoint out that lower cost employees allow managers to have more “people” on the schedule, but will likely reduce the amount of skill available to the operation.Ask students why most managers want their “best,” but also their most expensive, staff members working when the restaurant is busiest.Covers per hour÷Covers per server=Number of servers
19 Master Schedules Identify the Number of Required Employees continued Forecasting other positionsSubtract 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 positionsInstructor’s NotesAsk, “Why are servers taken into account before calculating the number of hours available for other positions?”Dollars available for other positions÷Average wage per hour=Number of hours available for other positions
20 Validating the Master Schedule The labor percent forecasted by the master schedule must match company standards.Fixed payroll+Variable payroll=Total payrollTotal payrollTaxes and benefitsTotal labor costTotal labor÷SalesTotal labor cost percentInstructor’s NotesRemind students that both fixed and variable payroll components will have taxes and benefits associated with them. These costs must be added to wages and salaries (payroll) to arrive at total labor costs.Ask students to identify some reasons why a master schedule might generate an estimated labor cost percentage higher than the company’s standard. Typical answers will include low sales forecasts, high fixed labor costs, or excessive scheduling of variable labor staff.
21 Creating the Crew Schedule Include specific employee names and reporting timesShould be distributed well in advanceMust ensure balance and equity for all employeesInstructor’s NotesAsk, “What, do you suppose, is meant by ensuring balance and equity for all employees?”Ask the following questions, “Have you ever had a schedule that you felt was unfair? If so, in what way was the schedule unfair? What could management have done to make the schedule more balanced and equitable?”
22 Creating the Crew Schedule continued Goals of the crew scheduleBuild flexibility.Use accurate sales projections to ensure the right number of staff are assigned at the right times.Consider legal restraints and company policies.Instructor’s NotesPoint out that teenagers, school attendees, and others may have legal constraints on their work availability, and these requirements must be followed.Explain that company policies may, for example, prohibit the scheduling of overtime or the scheduling of too many consecutive days of work without a day off.
23 Factors Directly Affecting Labor Costs Sales levelsTime trackingTime sheetsTimecardsAdvanced electronic methodsSchedules and schedule modificationsOvertimeBenefits offeredLabor contractsInstructor’s NotesExplain that benefit costs (especially those related to health insurance) have risen rapidly in the past decade and are predicted to continue to increase at a rate faster than that of employee’s wages.
24 Another Factor Directly Affecting Labor Costs Employee turnoverThe number of employees hired to fill one position in a year’s timePersons hired per year÷Average number of employees=TurnoverTurnover x 100Turnover rate percentInstructor’s NotesPoint out that a skilled employee will always be more productive than an unskilled worker. For this reason, managers should train their staff well and reduce or eliminate employee turnover.Tell students that you will provide an example and go to the next slide.
25 Another Factor Directly Affecting Labor Costs continued Employee turnover example300 hired÷100 needed=33 x 100300%Instructor’s NotesPoint out to students that the answer to the first equation means that for every employee in the restaurant, three people were hired in the past year.Ask students to identify some reasons for high levels of employee turnover in the restaurant industry.Ask about possible reasons for high turnover levels in a specific restaurant.
26 Factors Indirectly Affecting Labor Costs Adherence to StandardsStandards of employee performance are similar to standards of food quality.Just as food standards can be quantified, so can worker productivity be quantified.Instructor’s NotesAsk about standards other than productivity standards that are commonly applied to servers. These could include issues related to the wearing of uniforms, punctuality, and attitude.
27 Some Productivity Standards Sales÷Number of person-hours=Sales per person- hourCoversCovers per person- hourTotal sales per serverCovers sold by serverSales per coverInstructor’s NotesExplain that the number of employees working multiplied by the number of hours each works equals the total number of person-hours used.Sales per person-hour can be calculated for any time period, such as for a single meal period, a day, a week, or a month. It can be used to measure the productivity of a cook’s line, as well as a team of servers. Explain that comparisons should be made to the same shifts (i.e., breakfast to breakfast and lunch to lunch).Suggest that the covers per person-hour productivity standard is frequently used in settings such as college cafeterias, business dining, hospitals, and other large volume settings.Explain that sales per cover can be used to compare the sales effectiveness of one server to another. Ask students to identify other reasons why there could be variation in this productivity measure. Answers are likely to include specific sections of a dining room to which servers are assigned (i.e., smoking vs. nonsmoking), the size of tables in the employees’ assigned sections, and the skill and experience of the server.
28 How Would You Answer the Following Questions? Effective managers seek to closely monitor and thus regulate their restaurant’s (labor cost/labor cost percent).Labor costs include only the wages and salaries paid directly to the employees. (True/False)A master schedule includes all of the following exceptEmployee namesDays of the weekEmployee shiftsEmployee positionsEmployee turnover rates cannot be influenced by managers. (True/False)Instructor’s NotesLabor cost percentFalseAMention that the next section provides a review of the key terms in this chapter.
29 Key Term Review Budget Covers per server Crew schedule Employee benefitsEmployee turnoverFederal Insurance Contributions Act (FICA)Job descriptionLabor contractInstructor’s NotesBudget—projection of sales, costs, and profit that is used to guide day-to-day operational decisionsCovers per server—number of customer meals that a server can serve in one hourCrew schedule—chart that shows employees’ names and the days and times they are to workEmployee benefits—valuable, nonwage compensation provided to employees by employersEmployee turnover—number of employees hired to fill one position in one year’s timeFederal Insurance Contributions Act (FICA)—program for retirement and medical benefits administered by the Federal government and paid for by employers and employeesJob description—statement that details an employee’s duties and the standards to which he or she is expected to perform those dutiesLabor contract—agreement between management and a union that represents the employees and deals with information about wages, employee benefits, hours, and working conditions
30 Key Term Review continued Labor costLabor cost percentMaster scheduleMedicareOvertimePayroll dollarsPerson-hourProductivity standardQuality standardReturn chartInstructor’s NotesLabor cost—includes, in addition to payroll cost, such costs as the employer’s contribution to FICA and Medicare, worker’s compensation insurance, and all employee benefitsLabor cost percent—ratio of labor cost and business volume (labor cost divided by sales volume equals labor cost percent)Master schedule—template, usually a spreadsheet, showing the number of people needed in each position to operate the restaurantMedicare—money set aside for health benefits for those who cannot afford themOvertime—any hours worked over forty in a workweekPayroll dollars—number of dollars available for payroll during a scheduling periodPerson-hour—also referred to as labor hours; the total hours worked by hourly (variable-cost) employees for a given period of timeProductivity standard—level set by management to measure the quality and amount of work performed by an employeeQuality standard—level of excellence used to measure customer satisfactionReturn chart—chart that is filled out to explain why a customer returned an item to the kitchen
31 Chapter Learning Objectives— What Did You Learn? Distinguish between fixed, variable, and semi- variable costs.Explain how payroll cost, FICA, Medicare, and employee benefits make up labor cost.Describe the components and factors to consider in the development of a master schedule.Explain the difference between a master schedule and a crew schedule.Instructor’s NotesAsk students to do a personal assessment of the extent to which they know the information or can perform the activity noted in each objective.
32 Chapter Learning Objectives— What Did You Learn? continued List the factors that affect labor cost.Explain how direct factors such as business volume affect labor cost.Calculate turnover rate percentage, total dollars for labor costs, dollars available for scheduling, and hours available for scheduling.Explain how indirect factors such as quality and productivity standards affect labor costs.Instructor’s NotesAsk students to do a personal assessment of the extent to which they know the information or can perform the activity noted in each objective.