Labor Cost Considerations

Chapters 18

Copyright © 2006 by John Wiley & Sons, Inc. All rights reserved
 Current Compensation
• Direct: salaries, wages, tips, bonuses,
commissions
• Indirect: paid vacations, health benefits, life
insurance, free meals, free living
accommodations, use of employer-operated
recreational facilities, discounts on
accommodations at other properties within a
chain

Copyright © 2006 by John Wiley & Sons, Inc. All rights reserved
 Deferred Compensation
• Pension benefits
• Social Security

Copyright © 2006 by John Wiley & Sons, Inc. All rights reserved
 Determinants of Total Labor
Cost
• Labor turnover rate • Equipment
• Training • Layout
• Labor legislation • Preparation
• Labor contracts • Service
• Use of part-time staff • Menu
• Outsourcing • Hours of operation
• Sales volume • Weather
• Location • Competent management

Copyright © 2006 by John Wiley & Sons, Inc. All rights reserved
 Chapter Formulas

Labor turnover rate = Number of departing employees ÷

Total number of employees on staff

Break-even for staying open an additional hour =

Fixed costs ÷ (1 – Variable rate)

Copyright © 2006 by John Wiley & Sons, Inc. All rights reserved
 Saving Money by Using
Part-Time Staff

With all full-time staff

Wages: 4 dishwashers × 35 hours × $7 per hour = $980
Benefits: $980 × 20% = $196
Total labor cost: $1,176

Copyright © 2006 by John Wiley & Sons, Inc. All rights reserved
 Saving Money by Using
Part-Time Staff

With full-time and part-time staff

Full-time dishwashers
Wages: 2 dishwashers × 35 hours × $7 per hour = $490
Benefits: $490 × 20% = $98

Part-time dishwashers
Wages: 10 shifts × 7 hours × $4.50 per hour = $315
Benefits: $315 × 10% = $31.50
Total labor cost: $934.50
Copyright © 2006 by John Wiley & Sons, Inc. All rights reserved