Controlling labor costs: a matter of planning and monitoring

Andy Lanz runs Figaro’s Pizza in Verona, Wisconsin, an eight-year-old shop with carryout, delivery and a 35-seat dining room. He calls his eatery a “modest one” that doesn’t churn “massive volume.”

“So if I don’t pay attention to my expenses, I just don’t make money,” Lanz says.

In the margin-tight restaurant world of volatile commodity prices and ongoing overhead costs, labor remains one of the few business costs an opera­tor can moderate.

To be certain, rising labor costs remain a significant concern to piz­zeria operators and the livelihood of their outlets, particularly as wage regu­lations jump. Last January, eight states raised their minimum wage floor; meanwhile, 2013 will deliver addition­al rate hikes to operators. Such raises often put upward wage pressure on other positions within the restaurant.

According to the National Res­taurant Association, labor costs now represent about one-third of sales in America’s full-service restaurants, outdistancing food and beverage costs. If labor costs are not managed through scheduling, plan­ning and monitoring, experts warn, the expense can sprint away from operators and weaken the profit line.

“If you have too many people on the clock, it’s like deciding to pay the landlord a higher rent; each cuts off the bottom line,” says Dave Pavesic, a former Italian restaurant operator who spent 26 years on faculty at Georgia State University’s School of Hospitality.

While the temptation for Lanz and other operators is to run a leaner workforce and toil every possible hour themselves, such short-term relief often places pressures on areas such as service and productivity, thereby threatening to unleash long-term impact upon sales and traffic.

“If you cut on labor, odds are good the service or quality will suffer and that can become a vicious cycle,” Illinois-based restaurant consultant Izzy Khar­asch says.

The smarter option, many agree, is to learn how to effectively schedule, utilize and retain workers using a mix of mana­gerial know-how, operational savvy and technological tools.

In the restaurant world, where it’s easy to be consumed by routine, set labor patterns can be disastrous.Operators will over or under-schedule staff to maintain harmony, effectively ignoring the fact that sales may dip or rise by the day, week or season.

“The ones who control labor costs best know and monitor their numbers,” says Jennifer Wiebe of SpeedLine Solutions, a Washington-based provider of restau­rant POS software. She adds that labor savings come from building a schedule that’s “reflective of labor targets.”To that end, Lanz utilizes software tools that allow him to compare sales to labor costs as he compiles upcoming schedules. He’ll review past sales on POS reports and plan his labor accordingly. As he inputs schedules into the POS system, the software will display his labor costs and allow him to pivot as necessary.

“Tools save time and time is something you can never have enough of if you’re running your own restaurant,” Lanz says.

Operational and managerial changes can also help restrain labor costs.

Operators who understand the pro­duction of their products also should know how many employees are needed. Then, adopting an assembly versus prep­aration mindset, the staff should be able to work more efficiently. “Be prepared and organized for the volume of business you anticipate,” Pavesic advises.

Kharasch, meanwhile, encounters numerous operations that don’t have a time clock, which, he argues, deterio­rates accountability.

For those who do require employ­ees to “clock in,” time thievery is not uncommon. Employees might punch in early or linger before punching out. At one recent operation Kharasch visited, employees “milking” the clock was cost­ing the restaurant $30,000 a year. “We’re in a pennies business and pennies add up,” Kharasch says, adding that op­erators cannot be afraid to “cut people loose during slow times.”

Yet, the most important labor cost-controlling tool, many opera­tors and HR pros agree, is hiring the right people for the right job from the start, training them appropriate­ly, and investing in them to heighten retention.

“Having the right people in place is the beginning and end of this conversa­tion,” Lanz says, who subscribes to the well-adopted philosophy of hiring for personality and training for skill.

Kharasch suggests operators expand the horizons and skill sets of current employees. For instance, train someone on the register to serve tables or train the dishwasher to be a line cook.
“Look at the people you have and train them to do the next thing,” he says. “They’ll save labor costs by being a more versatile employee, but you’ll also be giving them confidence and improve retention by investing in their development.”

Kharasch advises operators to avoid looking exclusively at dollars and cents, a rather narrow-minded view that ignores the value of retention and someone who knows the business. In one recent case, Kharasch encountered a restaurant riding 11 consecutive months of losses. Within 60 days, the restaurant eliminated its workforce turnover and turned a profit.

Says Lanz: “Efficient workers who know your system help you control labor costs more than anything.”

Cutting labor at the POS: A step-by-step Guide

Jennifer Wiebe of SpeedLine Solu­tions offers operators step-by-step instruction on how to utilize a POS system to control labor costs.

First, set a labor goal and plan a schedule to meet it:
1. Review the sales forecast and ana­lyze the breakdown by daypart, order type and hour.
2. Copy the previous week’s schedule in the POS and adjust it to meet targets. Set staff availability for ease of scheduling and overhead for accurate labor costs.
3. Set restrictions for overtime and teen staff to comply with labor code.

Second, track labor costs throughout each shift:
1. Set limits on early and late clock-ins. Force a manager override for any exceptions.
2. Use fingerprint security to elimi­nate time clock abuse.
3. Track pay rates for staff perform­ing multiple jobs.

Finally, audit labor performance:
1. Monitor labor dashboard metrics and send staff home during slow times.
2. Take a shift snapshot to review labor metrics.
3. Track breaks and overtime for labor audits as well as manger overrides.
4. Export time clock data for payroll to reduce paperwork and account­ing costs.