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

2. 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.

3. 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

4. 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

5. 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.

6. 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

7. 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

8. # 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

9. 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

10. 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

11. 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)

12. 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

13. 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

14. Chapter Web Links Provincial/Territorial-Employment Standards
Alberta:
British Columbia:
Manitoba:
New Brunswick:

15. Chapter Web Links Provincial/Territorial-Employment Standards
Newfoundland:
Northwest Territories:
Nova Scotia:
Nunavut:

16. Chapter Web Links Provincial/Territorial-Employment Standards Ontario:
PEI:
Quebec:
Saskatchewan:
Yukon:

17. Chapter Web Links Federal-Employment Standards
Human Resources and Skills Development Canada:

18. Copyright
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