Labour costs and staff management

Last summer, BISTRO looked at cutting costs in the kitchen, from rationalising equipment to evaluating menus. Now, we swing the spotlight on labour costs and staff management – and what impact these can have on your bottom line.
It’s not as simple as paying lower wages. Rather, it’s about better juggling staff timetables and retaining quality employees.

Arm yourself with information
Careful scheduling and better productivity can help reduce labour costs.
Productivity can be improved through staff training, better kitchen and dining room lay-outs, and employing labour-saving equipment and products.
For labour scheduling, you need to be able to forecast demand, translate this into relevant staff numbers on hand, compare alternate schedules, and make changes where necessary.
Restaurant managers face two potential problems in this – either overstaffing, resulting in excessive labour costs, or understaffing, meaning a potential for service errors and a loss of customers.
Most operators rely on their personal experience and judgment when scheduling labour. But, careful reporting and analysis of the costs is critical for improving a business’s bottom line.
The traditional ratio of “payroll to total sales”, on its own, is not an effective and accurate measure either. Firstly, it only indicates to management what the cost difference is, without providing any specific information. Secondly, the figure is made up of staff wages in all job categories, whether waiters, cooks or dish-washers, so it is impossible to tell where any variances lie. Thirdly, such a measure does not reveal within which meal period or day of the week the greatest cost difference occurs.

Adding it up
To get an accurate picture of your labour costs, you can’t rely on a single measure. There are a few different calculations to employ, including:
Covers per labour hour. Although some drops in customer counts occur in the long run when prices are increased, this measure remains the most effective indicator of staff productivity. The number is calculated for each job category – as well as for the entire payroll – by dividing total labour hours by the customer count. It is not distorted in the way sales are affected by price increases and discounts.
Labour cost per cover. This reveals how much labour is used to serve each customer. The total payroll is divided by the number of customers. Analysis of this should show a wide spread between categories, including waiters, chefs and cashiers. By assessing the number of employees and average hourly wages, the number of hours worked can be controlled; and
Labour cost per labour hour. This is calculated by dividing total payroll by total labour hours. When calculated by employee job categories, the wage differences between roles can easily be seen. The averages in each category can be controlled by the number of employees, the average hourly wages, and the number of hours worked.

Fixed versus variable
The greatest portion of labour cost is a “fixed” expense. If you break down your payroll into “fixed” and “variable” labour, the largest portion will likely be fixed – as in, an expense that does not change, regardless of sales, staff numbers or other variables.
The fixed-cost portion is not just management salaries, which must be paid regardless of the amount of sales. It is also the “hourly” employees needed on the slowest hours, meal periods and days of the week. It is the skeleton staff required to open your restaurant’s doors, even when revenue is at its lowest. The employees, who are added to the fixed schedule as business increases, are your “variable cost” staff. Having too many of these on-board can put payroll percentages versus standard costs out of whack. In streamlining costs, for example, an increase of 50 customers an hour may require one or two more waiters to be added to the schedule, while other job categories remain constant. Extra bartenders or waiters may not be added to the schedule until customers increase by 100 an hour. Hence, payroll costs will increase in incremental steps, not in direct proportion to sales. Setting up a reporting and evaluation system to monitor labour costs will allow you to see the relationships between the numbers on the page – and a clearer, total picture of an operation.
One thing that is important is that the system must remain constant over time. For example, you must clearly define what constitutes “one cover”. Do you count small children? Adults that do not order a full breakfast? “Seats” or “orders”? What you do is your decision, so long as your customers are counted in a consistent manner.

Don’t “panic-hire”, but do “cross-train”
You can’t control labour costs until you understand that you’re not “scheduling” people but, rather, “buying” their potential to do work. There can be a tendency to schedule more people than is actually needed because of the fear of being short-staffed. But, if the expected increase in business never materialises – and everyone scheduled shows up – it will impact on the bottom line. The only reason for scheduling an extra staff member is if certain work needs to be done and that person can do the required job. After all, the cost of employing somebody is far greater than their total nett pay, regardless of whether they are salaried or on an hourly rate. Remember additional costs must also be taken into account, including paid holidays, superannuation, uniforms, meals, training and staff discounts. Still, there is often a temptation to “panic-hire”, which needs to be resisted. Panic-hiring occurs when you have been short-staffed for several weeks and, in desperation, fill the gap with under-qualified staff. By doing this, you will likely create more problems, rather than just working through the situation until you can get the type of applicants you actually want.
Another way of increasing staff productivity? “Cross-training”. While it does require time and effort, there is much to be gained from being able to pull a bartender off the bar and have them serve drinks properly to tables, when needed.

Reward your staff
As previously noted, labour costs shouldn’t be controlled by keeping salaries and wages low. Eateries that pay less than the going rate, of course, generally find it difficult to hire and retain more productive employees.
A low wage rate, in general, attracts lesser employees, whose efficiency, work ethic and temperament prevent them from getting identical positions in companies paying better wages. So, in short, the better employees will go where they are better compensated – and this will usually flow onto the quality of service provided to a customer, and hence, sales revenue.
While it’s true that just increasing wages will not necessarily mean staff will be more productive, money can be used as an effective motivator to reward outstanding performance. After all, if productive employees are treated no differently from those who are less motivated, what benefit is there for them to work harder? In conclusion, it seems, by rewarding your staff when necessary, ensuring effective measures are in place to calculate labour costs, and “cross training” employees, your restaurant can only be better-equipped for the future.

BISTRO, March 2010

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