Chapter 18 Labour Cost Considerations Principles of Food, Beverage, and Labour Cost Controls, Canadian Edition

Learning Objectives After reading this chapter, you should be able to: 18.1 Define compensation and list the principal types of compensation common in food and beverage operations. 18.2 Explain the difference between direct and indirect compensation. 18.3 Explain why each of the following is a determinant of labour cost or labour cost percentage: labour turnover rate, training, labour legislation, labour contracts, use of part-time staff, outsourcing, sales volume, location, equipment, layout, preparation, service, menu, hours of operation, weather, and competent management. 18.4 Explain why labour costs and labour cost percentages vary from one establishment to another. 18.5 Define labour cost control and explain its purpose.

Introduction to Labour Labour is a major prime cost Costs range from 15 to 45 percent of sales Ability to deal effectively is an important requirement for food and beverage managers Discuss types of labour compensation Understanding labour cost

Current Compensation Direct Indirect salaries wages tips or gratuities bonuses commissions Indirect paid vacations health benefits life insurance free meals free living accommodations use of recreational facilities discounts on accommodations within a chain company vehicles EAP leave

Deferred Compensation Deferred compensation is received by an employee after the conclusion of his or her period of employment. Pension benefits Health benefits All have some impact, direct or indirect, on the overall cost of labour in an establishment.

Determinants of Total Labour Cost Total cost of labour is affected by several considerations, some within the scope of a manager’s control, others not All have a direct effect on total dollar cost of labour or the cost of labour percentage, some affect both The significance of each varies from one establishment to another

Determinants of Total Labour Cost Labour turnover rate Preparation Training Service Labour legislation Menu Labour contracts Hours of operation Use of part-time staff Weather Outsourcing Competent management Sales volume Location Equipment Layout

# of departing employees Labour Turnover Labour turnover rate is a ratio relating the number of departing employees to the total number of employees on the staff Labour turnover rate = # of departing employees # of employees on staff

Use of Part-Time Staff Total labour cost for Full-time = $4,410 Wages: 7 cooks X 35 hours X $15 per hour = $3,675 Benefits: $3,675 x 20% = $ 735 Total labour cost for Full-time = $4,410

Use of Part-Time Staff Total labour cost for Full-time =$4,410 Wages: 7 cooks X 35 hours X $15 per hour =$3,675 Benefits: $3,675 x 20% =$ 735 Total labour cost for Full-time =$4,410 Full-time cooks Wages: 4 cooks X 35 hours X $15 per hour = $2,100 Benefits: $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 labour cost = $3,675

Break-even for staying open an extra hour Hours of Operation The number of hours that a restaurant operates will have a significant impact on labour cost. Break-even for staying open an extra hour = Fixed costs (1- variable rate)

Labour Cost Control Labour cost control is to: maximize the efficiency of the labour force, consistent with the standards For example: sufficient dishwashers to ensure dishes are washed efficiently, but no time when dishwashers stand around without any work sufficient servers to maintain standards of customer service, but never more than a sufficient number to serve the customers

Key Terms Bonus, p. 465 Labour cost control, p. 480 Commission, p. 465 Labour turnover rate, p. 467 Compensation, p. 464 Minimum wage, p. 469 Deferred compensation, p. 467 Outsourcing, p. 472 Direct compensation, p. 464 Salary, p. 464 Gratuities, p. 465 Tips, p. 465 Indirect compensation, p. 465 Wages, p. 464

Chapter Web Links Provincial/Territorial-Employment Standards Alberta: http://www.albertacanada.com/investlocate/1002.html British Columbia: www.labour.gov.bc.ca/esb/ Manitoba: www.gov.mb.ca/labour/standards/ New Brunswick: www.gnb.ca/0308/index-e.asp

Chapter Web Links Provincial/Territorial-Employment Standards Newfoundland: www.hrle.gov.nl.ca/lra/labourstandards/faq.htm Northwest Territories: www.ece.gov.nt.ca/Divisions/Labour/index.htm Nova Scotia: www.gov.ns.ca/lwd/labourstandards/ Nunavut: www.nucj.ca/LSO/#en

Chapter Web Links Provincial/Territorial-Employment Standards Ontario: www.labour.gov.on.ca/english/es/ PEI: www.gov.pe.ca/commcul/lair-info/index.php3 Quebec: www.cnt.gouv.qc.ca/en Saskatchewan: www.gov.sk.ca/programs-services/labour-employment/ Yukon: http://www.community.gov.yk.ca/labour/index.html

Chapter Web Links Federal-Employment Standards Human Resources and Skills Development Canada: www.hrsdc.gc.ca/eng/labour/index.shtml

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