Labor & Scheduling Notes

Labor Challenges in the Hospitality Industry

• The hospitality industry faces significant labor challenges as indicated by various signs and movements advocating for better wages and working conditions.

Current Restaurant Industry Statistics (2024 Projections)

• Projected sales for the restaurant industry in 2024 is 1.1 trillion.
• Positive sales expectations:
  • 8 out of 10 restaurant operators predict a 33% sales increase.
  • 45% predict sales will hold steady compared to 2023 levels.
• The restaurant industry employs 15.7 million people (National Restaurant Association, 2023).

Trends in Delivery, Carry-Out, and Drive-Thru Services

• Growth in delivery, carry-out, and drive-thru continues to rise.
• 52% of consumers consider ordering takeout an essential part of their lifestyle:
  • 67% of millennials.
  • 63% of Gen Z adults.

Employment and Staffing Challenges

• Industry employment has increased; however, there's still a high demand for more employees.
• 45% of operators report needing more employees.
• 70% of operators have job openings that are hard to fill.

Role of Jobs in Consumer Spending

• Restaurant sales are primarily local.
• 55% of adults view their local economy and job availability as excellent or good.

Current Challenges in the Restaurant Industry

• Only 27% of operators expect to be more profitable this year.
• Average food costs have increased by over 20% since 2019.
• Average wages have increased by more than 30% since 2019.
• Use of gig workers to fill staffing gaps is expected to increase:
  • 25% of operators anticipate using gig workers more commonly in 2024.
• Technology and automation may alleviate labor shortages:
  • 47% of operators believe technology and automation will become more common.

The "New Normal" in the Restaurant Industry

• 70% of operators believe business conditions have settled into or are on the path to a new normal.
• Delivery services represent a larger share of sales compared to 2019:
  • 60% of full-service operators report increased delivery sales.
• Continued adoption of outdoor dining and alcohol-to-go:
  • Over 90% of operators who implemented these options plan to continue if permitted.
• Increased preference for takeout:
  • 66% of adults are more likely to order food for takeout than before the pandemic.
• Preference for dining out:
  • 84% of consumers find dining out with family and friends a better use of leisure time than cooking and cleaning.

Restaurant Workers' Job Satisfaction

-Happy: 34%
-Stressed: 37%
-Content: 34%
-Overworked: 45%
-Exhausted: 32%

Labor Intensity in Restaurants

• Restaurants are extremely labor intensive compared to other industries.
• Average sales per employee (2015):
  • Eating & Drinking Places: 56,000
  • Grocery Stores: 226,000
  • Gasoline Service Stations: 478,000
  • Auto Dealers: 769,000

Sector vs. Industry Costs (2017)

• Average costs of all industries in the sector vs. industry costs:
  • Profit: 9.2% (sector) vs. 4.9% (industry)
  • Wages: 25.2% vs. 32.7%
  • Purchases: 34.7% vs. 38.5%
  • Depreciation: 4.4% vs. 1.9%
  • Marketing: 2.2% vs. 7.6%
  • Rent & Utilities: 2.1% vs. 11.8%
  • Other: 15.4% vs. 7.8%

Compensation Types

• Direct Compensation: Salaries, wages, tips, bonuses, commissions.
• Indirect Compensation: Paid vacations, health benefits, life insurance, free meals.

Calculating Labor Costs

• Standard Labor Cost: Budgeted cost.
• Actual Labor Cost: Real cost based on actual hours worked (historical).
• Managers use work schedules and employee hourly wages/salaries to calculate a department's weekly standard labor cost.

Labor Cost for Hourly Workers

• Preliminary Labor Cost = Hours Scheduled (or worked) X Hourly Rate

  • Preliminary means before benefits.
  • Using scheduled hours yields standard cost.
  • Using worked hours yields actual cost.

• Overtime Pay: 1.5 times the regular rate.

  • Example: Employee earns 11.75/hour and is scheduled for 45 hours.
  • Preliminary Labor Cost = (40 hours X $11.75) + (5 hours X$11.75 X 1.5) = $470 +$88.13 = 558.13

Salaried Workers (Exempt)

• Receive the same paycheck each week regardless of hours worked.
• Annual salaries can be divided into daily salaries by dividing by 365 days per year.

Labor Cost for Salaried Workers

• Preliminary Daily Labor Cost = Annual Salary ÷ 365 days

• Preliminary Labor Cost for any period = Daily Cost X Number of Days in the Period

  • Example: Preliminary Weekly Labor Cost = Preliminary Daily Labor Cost X 7

• Salaried worker earns 40,000.00 per year.

  • Preliminary Daily Labor Cost = $40,000.00 ÷ 365 =$109.59
  • Preliminary Weekly Labor Cost = $109.59 X 7 =$767.12

Accounting for Benefits

• Standard (or Actual) Labor Cost = Preliminary Labor Cost X (1 + benefits percent)

• All workers have some benefits cost (social security, workers’ comp).

• Benefits costs differ between employees and are calculated as a percentage of wages or salary.

• Employee scheduled for 39.5 hours at $9.50/hour; benefits cost is 13.8$9.50/h = 375.25

• Standard Labor Cost = 375.25 X (1 + 0.138) = 427.03

Standard vs. Actual Labor Costs

• Standard Labor Cost:

  • Can be forecast for days, weeks, months, or years. Longer periods are less accurate.

• Actual Labor Cost:

  • Based on real numbers and is always accurate for similar time frames.

• Actual and Standard costs are rarely identical.

  • Salaried workers earn the same, but hourly workers may have schedule adjustments.

• Large variances between standard and actual labor costs may indicate poor management.

Labor Cost Percent

• Labor Cost and Sales must cover the same time period.
• Standard labor cost % uses standard labor cost and sales dollars.
• Actual labor cost % uses actual labor cost and sales dollars.

Labor Cost \% = \frac{Labor Cost ($)}{Sales ($)}

-Example: Calculate weekly standard labor cost percent if standard weekly labor cost is $14,200.00 and forecast sales for that week are$48,500.00

Labor Cost \% = \frac{$14,200.00}{$48,500.00} = 0.293 \text{ or } 29.3\%

• Restaurant budgets $12,100 in weekly labor cost and$38,000 in weekly sales. Actual figures are $12,850 in labor and$39,400 in sales.
  • Standard = $12,100.00 ÷$38,000.00 = 31.8%
  • Actual = $12,850.00 ÷$39,400.00 = 32.6%
  • Labor cost went up despite stronger sales, indicating poor management.

Measuring and Improving Performance

• Measures evaluate individual employee performance or team performance.
• Person-Hours: Sum of work hours completed by all people in a group or team for a given period.

Sales per Person or Person-Hour

• Sales per person compares sales generated by each server (from POS).
• Sales per Person-Hour:

$Sales \text{ per Person-Hour} = \frac{\text{Total Sales for a Period}}{\text{Person-Hours for a Period}}$

• Restaurant earns 8,425.00 in sales during a 4-hour dinner service. 3 cooks and 2 dishwashers work the full shift.
  • Person-hours = 5 workers X 4 hours = 20
  • Sales per person-hour = 8,425.00 ÷ 20 person-hours = 421.25 per person-hour

Covers per Person-Hour

• Covers per person measures the number of customers served by each server (from POS). Servers who handle more customers are more valuable.

Covers \text{ per Person-Hour} = \frac{\text{Covers for a Period}}{\text{Person-Hours in a Period}}

• Team of 3 cooks and 1 dishwasher work from 11:00 – 2:00 for lunch service and serve 295 covers.

  • Person-hours = 4 workers X 3 hours = 12
  • Covers per person-hour = 295 covers ÷ 12 person-hours = 24.6 covers/person-hour

• Sales per person-hour and covers per person-hour are relative measures.

  • Used to set a baseline and improve efficiency.
  • Help interpret labor cost numbers impacted by varying wage rates.

Errors per Cover

• Error or QSA (Quality Service Audit):
  • Mistake resulting in an unsellable dish (dropped, burned, customer-rejected, etc.).
• Errors per cover measure the quality of worker performance.

Errors \text{ per Cover} = \frac{\text{Errors in a Period}}{\text{Covers in Same Period}}

• Errors per cover should always be a decimal well below 1.

• Should not change with business volume; management must improve employee work quality if it does.

• Restaurant served 417 guests during dinner but had 13 food errors.

  • Errors per cover = 13 errors ÷ 417 covers = 0.031 errors/cover.

Scheduling for Profit

• Determine projected sales, then write schedule based on:
  • Sales Forecast (prior sales volume).
  • Community events.
  • Weather.
  • Special Events.
  • Catering.

Costing Your Schedule

• Sample schedule with names, job, rate, and hours for each day of the week.

Addressing Overstaffing

• Avoid scheduling extra staff with the intention of sending them home early if it's slow.

Determinants of Total Labor Cost

• Equipment.
• Layout.
• Preparation.
• Service.
• Menu.
• Hours of operation.
• Weather.
• Competent management.

Saving Labor Questions

• Can positions be combined during slow periods?
• Are shifts staggered to maximize staff during rush periods?
• Is there a firm start time and an estimated finish time on the schedule?
• Are there opportunities for cross-training?

Labor Cost Control Best Practices

• Maximize variable cost employees.
• Contract labor where feasible.
• Utilize down-time effectively.
• Give customer incentives for off-peak usage.
• Monitor labor cost hourly/daily/weekly.
• Create economies of scale.
• Use a timekeeping system to prevent early/late clock-ins.
• Audit employees' first & last 30 minutes of their shift.

Work Schedule Examples

• Typical Sun-Sat schedule.
• Thur-Weds schedule.
• Skills-rated schedule.

Prime Cost

• Labor Cost and Food Cost sometimes work together.
• Cutting labor by buying pre-fab ingredients can increase food cost.

Prime Cost = \text{Cost of Goods Sold} + \text{Labor Cost}

• Weekly cost of goods sold is 1,730; labor cost for same week is 1,589.
  • Prime Cost = 1,730.00 + $1,589.00 =$3,319.00

Prime Cost Percent

$Prime Cost \% = \frac{\text{Prime Cost}}{\text{Sales}}$

• Café has prime cost of $3,319 during same week it has sales of$5,720.

  • Prime Cost % = $3,319.00 ÷$5,720.00 = 58.02%

• Reducing prime cost % (by reducing food, beverage, or labor cost without increasing the others) usually leads to higher profits.

• Prime cost % must not be cut at the expense of the business’s quality standards; otherwise, long-term revenue and profit may suffer.

Prime Cost Example

• Restaurant budgets $18,430.00 for cost of goods sold and$21,070.00 in labor cost for January. Sales are forecast to be 70,000.00.

• Actual figures: 16,590.00 for cost of goods sold, $19,962.00 for labor cost,$64,800.00 in sales.

• January Budget:

  • Cost of Goods Sold: 18,430.00
  • Labor Cost: 21,070.00
  • Sales: 70,000.00

• Actual Figures:

  • Cost of Goods Sold: 16,590.00
  • Labor Cost: 19,962.00
  • Sales: 64,800.00

• Standard prime cost = $18,430.00 +$21,070.00 = 39,500.00

• Standard PC% = 39,500.00 ÷ $70,000.00 = 56.43$16,590.00 + $19,962.00 =$36,552.00

• Actual PC% = $36,552.00 ÷$64,800.00 = 56.41%

• Costs were controlled very well in a month that fell below sales targets.

Review of Receiving, Storage, and Issuing Control Key Terms

• Directs, Stores, and Sundries

• Open Storeroom vs Closed Storeroom

• Requisitions vs Transfers

• Valuing Inventory:

  • Extension = number of units x cost per unit

• Weighted Average Method:

Price per unit = \frac{\text{total $ for ingredient over the inventory period}}{\text{total units purchased during the same period}}

• Inventory Turnover Rate formula