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Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
Labor cost considerations
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Labor cost considerations

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  • 1. Labor Cost ConsiderationsTuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 1 / 39
  • 2. Recap of the Previous session• Complete a menu engineering worksheet and analyze the resulting information.• Define the terms star dog plow horse , and star, dog, puzzle as they relate to menu analysis. Prepare a chart showing stars, dogs, plow horses, and puzzles.• Describe appropriate action to take for stars stars, dogs, plow horses, and puzzles when changes are made to the menu g Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 2 / 39
  • 3. KCM of the Current session• Define employee compensation. p y p• Explain the difference between direct and indirect compensation.• E l i why minimizing d ll wages i not Explain h i i i i dollar is the same as labor cost control.• Define labor cost control .• Explain labor cost percentage: labor turnover rate, training, labor legislation, labor , g, g , contracts, use of part - time staff, outsourcing. Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 3 / 39
  • 4. Scope• Components of Labor Cost. Cost• Direct Compensation.• Indirect C I di t Compensation. ti• Deferred Compensation.• Factors affecting LC and %age. Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 4 / 39
  • 5. Components of Labor Cost• Compensation:1. Current Compensation.a. Di t C Direct Compensation. tib. Indirect Compensation. 2. Deferred Compensation Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 5 / 39
  • 6. Direct Compensation• Salary: Usually the fixed monetary amount as compensation for services of employment largely on a monthly or annual basis which follows a definite organizational structure. structure• The hours of work may not affect the salary structure structure. Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 6 / 39
  • 7. Direct Compensation• Wages: Take actual number of hours into account.• Usually referred to as the compensation given to employees on a daily, weekly basis.• The wages are also interpreted as hourly rate which is then multiplied by the hourly p y y wage rate and at the end of the week given as compensation to the employee. Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 7 / 39
  • 8. Direct Compensation• Tips: Often referred in the America s as America’s gratuities.• These are under the federal law USA are considered as a legal income as long as it is processed by the company. p y p y• Bonus: Defined as a reward in monetary amounts over the employee’s regular p y g wages and salaries largely related to the employees general performance. Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 8 / 39
  • 9. Direct Compensation• Commissions: Monetary compensation given to employees as a percentage of the sales. sales Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 9 / 39
  • 10. Indirect Compensation• Sometimes referred to as benefits fringe benefits, perquisites, perks.• They may include Paid Vacation Health Vacation, benefits, Life Insurance, Free meals, Free living accommodations use of recreational facilities.• C t i resort properties h Certain t ti have separatet accommodations for staff and free meals. Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 10 / 39
  • 11. Deferred Compensation• Deferred compensation is defined as compensation received by an employee at the conclusion of his period of employment.• Pension benefits benefits.• Gratuity after 5 years of service in India.• Provident fund India.• Social security USA y Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 11 / 39
  • 12. Factors affecting LC and %age1. Labor Turnover rate. 9. Equipment. q p2. Training. 10. Layout.3. g Labor legislation. p 11. Preparation.4. Labor contracts. 12. Service.5. Use of part time 13. Menu. staff( Casuals) 14. Hours of Operation.6. Outsourcing. 15. Weather.7. S l V l Sales Volume. 16. Competent8. Location. management Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 12 / 39
  • 13. Labor Turnover rate• Labor Turnover rate: A ratio relating the number of departing employees to the total number of employees employees.• Usually expressed as a percentage.• C Commonly measures i th USA as 10 l in the 10- 20%.• Usually managed by the human resource department. Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 13 / 39
  • 14. Labor Turnover rate• High turnover rates result in higher labor costs.• Expenses incurred by the organization for replacing and employee are for advertizing, interviewing, advertizing interviewing background check, references and training. Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 14 / 39
  • 15. Labor Turnover rate• The total cost per employee in 1993 spent over recruitment was estimated to be $ 2500 so if a restaurant has 50 employees and the turnover rate is 100%.• The cost of recruitment could go up as high as $ 125000.00 per year. Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 15 / 39
  • 16. Training• Training is required at every phase of recruitment.• For a dishwasher it would be a one on one and observation of performance.• For a experienced cook training may involve meeting familiarization with the menu equipment and client expectations. q p p• Training extends from Induction to on the j job in all cases. Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 16 / 39
  • 17. Training• Training helps in reducing labor turnover rate and shapes employee minds reduces attrition. attrition• Training may be done in-house or by an external agency agency.• Results of training are done by evaluating performance of employees from the f f l f th Knowledge, Competencies and Mindset. Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 17 / 39
  • 18. Labor Legislation• Labor legislation in the USA varies from state to state unlike India where there is minimal difference.• The minimum wage is what mainly is contributory in minimum wage. y g• The minimum wage in the USA is hourly y while in India it is monthly.• http://www.legalserviceindia.com/income% 20Tax/Tax5.htm Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 18 / 39
  • 19. Labor Contracts• This is a modern day methods to reduce the effect of labor on the operational needs. needs• The system exists in both types of Organizations unionized and non non- unionized.• H How ever some of th b f the benefits h fit have t b to be extended to the contractual staff. Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 19 / 39
  • 20. Use of Part-time staff Part time• Has significant impact on the labor cost:• Example of Luvin’s Camp Slosh Bar and Restaurant• Luvin has 7 cooks and pays them $ 15 per hour.• Wages:• 7 cooks x 35 hours x $15 per hour = $3,675 Benefits: 3,675 x 20% = $ 735 Total labor cost = $4,410 Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 20 / 39
  • 21. Use of Part-time staff Part time• Full - time cooks Wages:• 4 cooks x 35 hours x $15 per hour = $2,100 Benefits: B fit $2,100 20%= $2 100 x 20% $420 Part - time cooks• Wages:• 15 shifts x 7 hours x $10 per hour = $1,050 Benefits: $1,050 x 10% = $ 105 $ New total labor cost = $3,675 Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 21 / 39
  • 22. Outsourcing of labor and Food• One of the main methods used these days by the IT industry and contractual p y hospitality.• Reduces labor costs and organizational p y responsibility.• Skills come as a package.• Purchasing becomes easy like desserts.• Cleaning services, Ice carving, desserts and baked goods are examples. Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 22 / 39
  • 23. Sales Volume• Peak hours and Weak HoursHours.• Scheduling staff using business hours as standard. standard• In short it is know as the complete utility of manpower during the weak hours of the operation.• Scheduling becomes easier when the operation is large because its easier to hire cooks and dishwashers on hourly basis basis. Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 23 / 39
  • 24. Location• Labor Costs vary in place to place rural areas and economically backward area have lower labor rates rates.• Labor costs hold a relationship with areas where the cost of living is high high.• They also relate to the sales figures as sales price of a particular it l i f ti l item. Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 24 / 39
  • 25. Equipment• Labor costs can be reduced by automation in the kitchen by using automatic peelers, slicing machines Pulverize machines machines, machines, accelerated dough fermenting machines and dough kneaders kneaders.• Old and poor quality equipment actually increases cost of labor in man hours hours. Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 25 / 39
  • 26. Layout• The amount of space used has a direct effect p on the labor cost.• Such facilitating arrangement should me made at the planning phases phases.• The biggest difficult arises in a badly designed kitchen.• Also the distance between the kitchen and the dining area.• The proximity between the stores, Kitchen and Garbage disposal area is also of vital importance. importance Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 26 / 39
  • 27. Preparation and Service• The comparative is made between restaurants making ready to eat foods and regular restaurants that have a standard kitchen brigade. ki h b i d• The ready to eat foods restaurant does not require extensive preparation storage and i t i ti t d preparation time.• Another aspect can be useful where a mix of ready to eat and preparation items can be made. Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 27 / 39
  • 28. Service1. Vending machines.2. QSR drive thru.3.3 QSR take away away.4. QSR.5.5 Eateries. E t i6. Public Cafeteria.7. Buffet restaurants.8. American casual dining. Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 28 / 39
  • 29. Service• 9. 9 Grill rooms rooms.• 10. Steak houses.• 11. Specialty restaurants. 11 S i lt t t• 12. Fine dining restaurants.• 13. International destination restaurants.• 14. 14 Guerdon service restaurants restaurants. Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 29 / 39
  • 30. Menu• In restaurants like buffet types its easier to prepare items in bulk rather than À la carte restaurants.• The large list of main courses will require larger manpower to execute.• The most effective in this is ODC business.• Fast food restaurants are another example of restaurants with reduced LC owing to the menu. menu Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 30 / 39
  • 31. Hours of Operation• Restaurants open all 24 hours will have a higher LC as compared to the others.• Coffee shops in 5 * hotels face the similar problem.• Fixed labor are independent of business volume.• The following example will shed extra light:• Chandni wants to extend the restaurant operation hours from 21h00 hrs to 22h00. Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 31 / 39
  • 32. Hours of Operation• Additional wages from extension of one hours g amount to $ 148.00• Heat and Electricity: $ 11.00• Variable costs estimated at $ 0.38 per dollar sale.• FC Break-even Break even = ————————— CR (equal to 1 — VR)• BE for 1 extra hour = $ 159 0.62 BE= $ 256.45 Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 32 / 39
  • 33. Weather• One of the determinants of labor cost which completely beyond the managers control.• However the manager can read the forecast of weather and schedule staff accordingly.• Consistency in weather may also boost the sales.• Weather reports may not be accurate the accurate, managers projection is the best at such times. times Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 33 / 39
  • 34. Competent Management• The Labor cost is affected by the y management ability to plan, organize, control, and lead the organization.• The following have a direct effect:1. Measurement of suitable performance.2.2 Scheduling employees for optimal performance.3. Training facilities. g4. Equipment and material.5. Resources, motivation, direct and lead. Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 34 / 39
  • 35. Restaurant ComparativeTuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 35 / 39
  • 36. Questions on Comparative• Which restaurant has a higher SVC?• Which restaurants has a higher DVC?• Wh t kind of restaurant do you think A What ki d f t t d thi k and B are?• What corrective action should be taken by restaurant A?• What corrective action should be taken in which area for restaurant B? Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 36 / 39
  • 37. Labor Cost control defined• A process used by managers to direct direct, regulate and restrain employee actions .• Sometimes mistaken to suggest mere reduction of payroll costs to their irreducible minimum minimum.• Short term policies in minimizing immediate costs may h i di t t have undesirable d i bl long term effects. Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 37 / 39
  • 38. The Sequence of the Labor Control P C l Process1.1 Establish standards and standard procedures for the operation.2.2 Train all individuals to follow established standards and standard procedures.3. Monitor3 M it performance and compare actual f d t l performance with established standards.4. Take appropriate action to correct deviations. Tuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 38 / 39
  • 39. Questions Q ti Comments C tTuesday, July 05, 2011 BAC-5132 Food and Beverage Management-II-Labor Cost Considerations Slide 39 / 39

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