CHAPTER 10 FOUNDATIONS OF RESTAURANT MANAGEMENT & CULINARY ARTS CHAPTER 10 LABOR COSTING

10
Study Questions
CHAPTER
1 How do labor costs affect cost control?
2 What factors affect labor costs?

LABOR COSTING 3 What is the relationship between sales volume and

labor costs?
4 What types of schedules are typically used in a
foodservice operation?

Key Terms
Semivariable cost
Business volume
Employee turnover
Quality standards
Operational standards
Variable cost
Master schedule
Crew schedule

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INDUSTRY
The Cost of a New Hire
According to the National Restaurant Association,
the restaurants-and-accommodations sector suffers
an employee turnover rate greater than 70 percent.
Considering that the costs associated with replacing
a single employee average more than $3,000,
employee retention is an ongoing challenge to the
bottom line of restaurants.

INTRODUCTION INTRODUCTION
BUDGETING LABOR COSTS
IN A FOODSERVICE OPERATION, YOU CAN KNOW THE LOCATION OR
SCHEDULING
AREA OF THE BUSINESS REALLY WELL, AND YOU CAN ALSO KNOW
FOOD REALLY WELL. THAT IS A GREAT START; HOWEVER, IT DOES
NOT MEAN THAT YOUR OPERATION WILL BE SUCCESSFUL. WHY NOT?
BECAUSE YOU ALSO NEED TO MANAGE LABOR (PAYROLL), WHICH
IS OFTEN THE HIGHEST EXPENSE INCURRED WHILE RUNNING
A RESTAURANT.
To be profitable, you have to keep your labor costs under control. Profit margins Figure 10.1: Various full-time and part-time employees.
are pretty slim in foodservice operations. In fact, the typical restaurant operates
staffing on the part of management will likely lead to disgruntled employees,
on a profit margin of only 2 to 6 percent. So an increase or decrease in labor
which could then result in even more cost-control problems, such as increased
costs can have a major impact on your bottom line. And every manager or
employee turnover.
owner wants the bottom line to show a profit!
For an operation to achieve its budgeted profit, the sales projections listed in
BUDGETING LABOR COSTS its budget must be met. Additionally, the operation’s costs must be held to its
Labor is a controllable, semivariable cost. A semivariable cost is a cost made standards, which is the budgeted dollar amount or percentage for each type of
up of both fixed (unchanging) and variable (changing) cost elements. Labor cost. It is an important part of the management function to make sure that labor
costs are tied to sales, which is a variable (changing) cost element, but not (payroll) cost is in line with the budgeted standard. In short, an operation must
directly. For example, the typical full-service restaurant spends about one-third know all of the factors that contribute to labor costs as well as how to create
of its sales revenue on labor. Most operations have full-time staff, such as a effective schedules for all employees.
manager and chef, and also part-time staff, such as servers, greeters, and The ideal labor cost is the standard the restaurant uses to budget for staffing
sometimes line cooks (see Figure 10.1). Full-time employees are often salaried, VIDEO
needs; it represents what the restaurant management predicts will happen.
so they will work and be paid regardless of how busy the operation is on a Factors Contributing to Labor Costs
The actual labor cost varies above or below the ideal cost from day to day, For a video on factors contributing to labor costs,
daily or weekly basis. Salaried employees make up a fixed (unchanging) cost because the management’s prediction cannot be 100 percent accurate. please go to: Textbooks.Restaurant.org/Videos.
element. But part-time employees are staffed according to sales volume, or how
busy or slow an operation is at a given time or during a particular season. Factors Contributing to Labor Costs
These employees make up a variable (changing) cost element. Many factors affect labor costs for a business, including:
Operations must be aware of the fluctuations in their sales so that they can • Business volume
have just the right amount of staff on hand to handle guests efficiently. Having • Employee turnover
too few staff results in a poor-quality product and poor service. Having too • Quality standards
many staff results in money wasted. Additionally, inefficient and/or inconsistent • Operational standards

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CHAPTER 10 FOUNDATIONS OF RESTAURANT MANAGEMENT & CULINARY ARTS CHAPTER 10 LABOR COSTING

Business volume is the amount of sales an operation does for a given time SCHEDULING INTRODUCTION
? DID YOU KNOW
period. Business volume impacts labor costs. The variable elements of labor Scheduling mainly depends on how much revenue an operation is currently BUDGETING LABOR COSTS
costs go up and down in direct relation to sales volume (an increase in sales earning and how much it expects to earn in the future. Historical sales records SCHEDULING
About Turnover
The turnover rate for employees in the means more hours needed; a decrease in sales means fewer hours needed). serve as a baseline for making those predictions about future revenue. The
restaurants-and-accommodations sector
Employee turnover is the number of employees hired to fill one position in a baseline is either increased or decreased depending on current activities
topped 70 percent in 2015, at 72.1 percent,
up slightly from 66.7 percent in 2014, year’s time. It directly impacts labor costs. Typically, the higher the turnover and trends.
which was up slightly from 62.6 percent rate of a given operation, the higher the labor costs. This results primarily from The primary rules for scheduling employees are:
in 2013. The year 2015 marked the fifth
the training costs involved in bringing on new staff.
year in a row that the turnover rate rose. 1 As projected sales increase, the number of employees needed increases.
In comparison, the average turnover rate Quality standards also affect labor costs. Quality standards are the 2 As projected sales decrease, the number of employees needed decreases.
for all private sector workers stood at 45.9
specifications of the operation with regard to products and service. The type of
percent in 2015, up slightly from 44.5 A master schedule is a template, usually a spreadsheet, showing the number
percent in 2014. operation and the type of menu it has determines the number of staff and the
of people needed in each position to run the restaurant or foodservice
skill level required of that staff to meet the operation’s needs.
operation for a given time period (see Figure 10.2). The master schedule does
Operational standards also need to be met. Operational standards are the not use names. It simply lists the positions and the number of employees in
specifications of an operation with regard to products. If an employee does those positions. Create it with the idea that a certain sales level will likely be
not prepare a product that meets the operation’s standards, the employee reached. As sales projections change, adjust the master schedule accordingly.
must redo that item. This costs money, not only in terms of wasted product
that increases food costs, but also in terms of productivity and increasing Job Title Monday Tuesday Wednesday Thursday Friday Saturday Sunday
labor costs. Shift # Hrs Shift # Hrs Shift # Hrs Shift # Hrs Shift # Hrs Shift # Hrs Shift # Hrs
Sales Volume and Labor Costs Host(ess) 9–5 8 9–5 8 9–5 8 9–5 8 9–5 8 9–5 8 9–5 8
Labor can be one of the highest expenses that a foodservice business incurs. Server 9–3 6 9–2 5 10–2 4 9–2 5 10–2 4 9–2 5 10–3 5
Restaurants and food processors must pay employees to prepare food and to Server 10–3 5 10–1 3 10–2 4 10–2 4 10–2 4 10–2 4 10–4 6
get it to customers, either by serving tables or by delivering packaged products
Server 11–5 6 11–5 6 12–5 5 12–5 5 12–5 5 12–5 5 12–5 5
at a wholesale or retail level. As noted, labor costs will go up and down in
relation to sales volume, but not necessarily in direct proportion. Also remember Bar 9–2 5 9–1 4 9–1 4 10–3 5 9–2 5 10–3 5 9–2 5
that, for the most part, management salary remains the same regardless of the Bar 12–5 5 12–5 5 12–5 5 1–5 4 12–5 5 1–5 4 12–5 5
operation’s sales volume. Grill 8–4 8 8–4 8 10–2 4 10–2 4 8–4 8 8–4 8 9–3 6
However, staff members such as the waitstaff and line cooks are often paid an Grill 9–5 8 9–5 8 11–5 6 11–5 6 9–5 8 9–5 8 11–5 6
hourly wage and are scheduled according to anticipated sales. As a result,
Fry 12–5 5 12–5 5 12–5 5 12–5 5 12–5 5 12–5 5 12–5 5
the cost of hourly employees goes up as sales go up and goes down as sales
Dishes 8–1 5 8–1 5 8–1 5 8–1 5 8–1 5 8–1 5 8–1 5
go down. If proper scheduling is used, the cost will go up and down in direct
proportion to sales levels. Dishes 12–5 5 12–5 5 12–5 5 12–5 5 12–5 5 12–5 5 12–5 5
Restaurants must maintain enough staff to cover tables and prepare orders TOTALS 66 62 55 56 62 62 61
even when business is slow, and they achieve economies of scale during busier Figure 10.2: A sample master schedule.
times. In a sense, the cost of maintaining an ongoing skeleton staff is a fixed, or
For example, if a new office building is slated to open across the street from a
noncontrollable, cost, while the cost of adding additional staff to cover added
restaurant, that restaurant should project lunch sales to show an increase over
demand is a variable cost. A variable cost is one that will change based on
the previous year, because it would likely see more sales from the new office
the amount of sales at the restaurant or foodservice operation.
workers. On the other hand, if a manufacturing plant in town is expected to shut
down, a local restaurant would lower its projections, as its market will have less
money overall for dining out.

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Using the same sales projections, a manager must also determine the • Identifying shift leaders: These
available payroll dollars, which is what can be paid for labor during a individuals can train new hires ? DID YOU KNOW
scheduling period. The manager can then use that information to create a and take the lead when plans
The Number of Restaurant Workers
crew schedule. A crew schedule is a chart that shows employees’ names and need to change on the fly during Just look at the following numbers!
the days and times they are to work. Figure 10.3 is a sample crew schedule. the course of a work shift. • 14.4 million = number of restaurant
Create the crew schedule by using the master schedule as a template. • Having on-call employees: industry employees
It is helpful to create a list of • 1.7 million = projected number of new
CREW SCHEDULE restaurant jobs created by the year 2026
employees with more flexible
S = Server    B = Bar   G = Grill   F = Fry   D = Dishes • 10 percent = the restaurant workforce as
schedules who can be called to part of the overall U.S. workforce
Week of 5/12/18 see if they wish to fill a shift should
Saturday 8 a.m. 9 a.m. 10 a.m. 11 a.m. 12 p.m. 1 p.m. 2 p.m. 3 p.m. 4 p.m. 5 p.m. 6 p.m. 7 p.m. 8 p.m. 9 p.m. 10 p.m. 11 p.m. an issue arise (see Figure 10.4). Figure 10.4: A manager contacting an on-call employee.
Michele S S S S S S S S S
Having all of these provisions in
Ron S S S S S S S place will lead to properly staffed operations with happy crews and contented
Alex S S S S S S
management. Such conditions will invariably produce lower labor costs overall,
Marcia S S S S S S
as turnover, negligence, and theft will be down, while productivity will be up—
Randy S S S S S S S S S S S
the ideal cost-controlling scenario.
Max S S S S S S S
Claire S S S S S S S S
Hunter S S S S S S S ESSENTIAL SKILLS HOW TO DEVELOP A CONTINGENCY PLAN
Jacob B B B B B B B
Isabella B B B B B B B B B B Contingency plans give both managers and employees peace of mind by providing road maps to resolve any
Ethan G G G G G G G G G unusual situation. These plans are especially valuable in case of emergency, such as a fire or an outbreak of
David G G G G G G G G foodborne illness, which requires working with outside agencies. The following components should all be involved:
Jessica F F F F F F F • Make a telephone tree. This makes it easier to
John F F F F F F F F F contact all staff, including on-call employees, in a
Barry D D D D D D D D D short period of time. See Figure 10.5.
Sue D D D D D D D D Note: Depending on the operation, you might use
Figure 10.3: Sample crew schedule. a mass voice mail, email, or text message that
reaches everyone simultaneously.
Develop the crew schedule with flexibility in mind. Virtually every employee
• Cross-train employees. Every recipe, technique,
INDUSTRY needs to make adjustments to assigned shifts at some point. Similarly,
or task used in the operation should be practiced
Scheduling Staff and Calling “Audibles” managers might need to ask employees to make last-minute changes to
Managers who make up the crew schedule are and understood by at least three employees.
these assignments. Maintaining open, two-way communication in the • Create and test an emergency plan.
sometimes like quarterbacks in football: they
may have to change plans and call an “audible” scheduling process and being clear about scheduling policies are very • Communicate with staff. Be sure everyone
at the last minute to adapt to new situations. Both important for ensuring both employees and managers work together to understands what he or she should do in case
employees and employers need some flexibility in
staff the operation. problems arise.
scheduling. We are all human, and personal and
working lives can change quickly. Many restaurant Of course, things do not always go according to plan, so develop a contingency
and foodservice operations have carefully
plan. Such a plan helps the operation remain efficient and productive even
developed staffing policies to help prepare for
unexpected situations. One common component during adverse conditions, such as power outages, weather issues, employee
is the audible—the ability either to call staff absences, and so on. A good contingency plan should include the following:
members in to work or to cancel their shifts without
much notice in order to meet changing needs. This • Cross-training employees: Cross-trained employees can handle
flexibility allows restaurants and managers to control responsibilities in sections of the operation aside from their primary Figure 10.5: A sample telephone tree.
their labor costs without sacrificing customer service. work responsibilities.

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CASE STUDY FOLLOW-UP

KNOWLEDGE CHECK
Refer back to the unit-opening case study, and answer these questions.
1 What could happen if labor costs fall out of line with the 3 What is the relationship between sales and labor costs? Question 1: Labor costs are up at Uptown Grille during brunch service because
budgeted standard? 4 What strategies should be included in a contingency plan? they are overstaffing. What options do Judy and Chef Mike have to go
about controlling their labor costs during brunch service?
2 List the four factors that affect labor costs.
 xplain to Judy and Chef Mike how business volume, employee turnover,
Question 2: E
quality standards, and operational standards affect labor costs.

SUMMARY CHAPTER ACTIVITIES

In this chapter, you learned the following:
Language Arts: Turning around Turnover
• Operations must be aware of the fluctuations in their sales in order to have Your restaurant suffers from a high turnover rate, which is increasing your labor
just the right number of staff available to handle guests efficiently. Not costs and bringing down productivity. As the manager, you need to solve this
problem. Put together a one-page plan that will address the turnover issue. What
having enough staff results in poor-quality products and service. Having
steps can you take to reduce turnover in your restaurant or foodservice operation?
too many staff results in money being wasted.
Science: The Science of Management
• The four primary factors that affect labor costs are business volume, The science of management means that, in practice, managers use a specific body
employee turnover, quality standards, and operational standards. of information and facts (data) to logically guide their behaviors.
• L abor costs can go up and down as sales go up and down, but not Select a local restaurant and interview the manager on the steps he or she takes to
necessarily in direct proportion. control labor costs. Among other factors, questions may include:

• Scheduling depends greatly on how much revenue an operation is bringing • How does the manager determine the volume of business (sales volume)?
• How does the manager create schedules?
in and how much revenue an operation is expecting to bring in. Such sales
• Does the restaurant cross-train?
projections are an estimate of future sales based largely on historical sales
records. The historical sales records are used as a baseline. This baseline is Math: Scheduling and Payroll
either increased or decreased based on current local and national trends. Using the crew schedule from the chapter, assign wages to each level to determine
how much is spent on labor. On one of the days, have four servers stay on the
• A master schedule is a template, usually a spreadsheet, showing the clock for an extra hour due to increased volume and determine the new payroll
number of people needed in each position to run the restaurant or amount. Discuss how much of an impact this has on the payroll and what sales you
would need to cover these costs.
foodservice operation for a given time period. No names are listed on
the master schedule, simply the positions and the number of employees in Collaboration: Creating a Crew Schedule
those positions. A master schedule is created with the idea that a certain Working with two or three other students, create a one-week crew schedule for a
restaurant open six days a week for lunch and dinner that employs eight full-time
sales level will likely be reached. A crew schedule is a chart that shows cooks, four part-time cooks, six part-time servers, two full-time hosts, two full-time
employees’ names and the days and times they are to work. dish washers, and two part-time dish washers. Assume all the cooks are equally
skilled and that the restaurant’s service periods are 11:30 a.m. to 2:00 p.m. for
• A good contingency plan should include cross-training employees, lunch, and 5:30 p.m. to 9:00 p.m. for dinner. You need at least three cooks, three
identifying shift leaders, and having on-call employees. servers, one host, and one dish washer for every shift.

Career Readiness: Keep Those Costs under Control

You have recently been promoted from lead server to manager at the Lemon & Leaf
Café. The owner told you that his goal is to maintain labor costs at or below 20
percent of total revenue.
Complete the spreadsheet on the next page to calculate the current labor cost
percentages for each day, as well as for the week. (Assume employees are paid
$7.50 per hour.) Use this information to answer the questions that follow.

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LEMON & LEAF CAFÉ EXAM PREP QUESTIONS

HOURS WORKED 1 A chart that shows employees’ 4 Employee turnover is 8 The crew schedule needs to be
Employees Mon Tues Wed Thurs Fri Sat Sun Total names and the days and times A the amount of sales an operation created with flexibility because
Kaitlyn 8 8 8 8 8 they are to work is called a is doing for a given time. A employees will not follow
A crew schedule. B the number of employees procedures and make changes
Nick 8 8 8 8 8
B business plan. hired to fill one position in against the restaurant’s policies.
Cathy 6 7 7 6 5 8 C master schedule. a year's time. B management may need to
Daniel 7 9 6 8 8 D employee production chart. C a measurement of how alter the schedule to deal with
Sarah 6 6 6 8 6 quickly employees are able environmental changes.
2 Cross-training employees allows to serve guests. C employees may want extra
Haley 8 8 8 8 8
the restaurant to be able to D when labor costs are higher hours and write them in.
Hannah 5 5 5 8 8 8 than predicted. D employees decide to change
A cut down on labor, as one
T.J. 6 6 6 5 8 person can do multiple tasks. positions.
Holly 8 8 8 8 8 B have staff handle responsibilities 5 Scheduling too few staff in the
Bethany 8 7 8 8 8 outside their primary work kitchen for a particular shift can 9 Changes in business volume can
responsibilities. result in A c ause changes in labor
Total Hours Worked
C have less flexibility for creating A less work being performed per costs, in order to deal with
LABOR COST PERCENTAGE CALCULATION staffing charts. staff member. changing sales.
Total Sales $2,000 $1,250 $1,300 $1,500 $2,500 $2,700 $2,000 D hire more management. B possible lower production B have no effect on labor costs
quality, because the staff are because a master schedule
Labor Cost
3 A master schedule is a list of stretched thin. needs to be followed.
Labor Cost Percentage C better production times, C have no effect on the labor
A w hen your potential guests
come into your restaurant. because the staff will work as costs for the month.
Questions:
B how many employees you will a better unit. D have very little effect over
• Is the café achieving the labor cost percentage goal? Please explain. need to staff your restaurant D higher labor costs for the shift. multiple months.
• What can you do to increase or decrease the labor cost percentage? during a shift.
• Identify possible customer-service issues that might result from the current C how many shifts each employee 6 Management needs to balance 10 The ideal labor cost
staffing pattern. will get over a week. sales with labor costs in order to A represents what the
Critical Thinking: Employee Policies D potential sales and costs to A keep the labor costs high for restaurant management
Research the employee policies of two different restaurant or foodservice calculate gross profit. great customer service. predicts will happen.
operations. What do they offer employees in terms of scheduling, benefits, and B keep labor costs low and not B should not be a major factor to
pay? Write a paragraph summarizing each of the two employee policies, and worry about good service. worry about.
then, in an additional paragraph, explain which one you think is better in terms of
C ensure a profit is made while C is a percentage of food costs
controlling labor costs and why.
keeping guests happy. for the restaurant.
D assist with scheduling the right D does not include labor costs for
amount of staff. management.

7 The master schedule should not list

A h ours per employee position.
B employee names.
C total hours needed per day.
D the estimated number of people
needed per day.

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