Labor costs will most likely be your second largest expense, after food costs. Thus, is it vital to keep labor costs under control.
Labor and Payroll Basics
Labor Expenses are ALL costs associated with your restaurant's employees and managers. Payroll, taxes, employee benefits, employee meals, and holiday pay are just some of the items that make up labor costs.
Labor expenses can be further broken down into Controllable and Non-Controllable Expenses. Payroll, for example, would be a Controllable Labor Expense, because managers can directly affect how much payroll costs are by hiring and firing employees, cutting and expanding payroll hours, etc. Non-Controllable Expenses would include items such as State and Federal Taxes, Insurance Premiums, and Retirement Plans.
Also, Payroll Costs can be broken down into Fixed Payroll and Variable Payroll Costs. Fixed Payroll Costs are typically associated with salaried employees, such as restaurant managers and executives. Variable Payroll Costs are typically associated with hourly employees.
The Fair Labor Standards Act (FLSA) mandates that certain employee records much be kept for each worker. This includes the following information:
- Employee's full name, as used for Social Security purposes, and on the same record, the employee's identifying symbol or number if such is used in place of name on any time, work, or payroll records
- Birth date
- Address, including zip code
- Sex and occupation
- Time and day of week when employee's workweek begins
- Hours worked each day and total hours worked each workweek
- Basis on which employee's wages are paid (e.g., "$9 per hour", "$440 a week")
- Regular hourly pay rate
- Total daily or weekly straight-time earnings
- Total overtime earnings for the workweek
- All additions to or deductions from the employee's wages
- Total wages paid each pay period
- Date of payment and the pay period covered by the payment
For more information on record keeping requirements, see https://webapps.dol.gov/elaws/elg/minwage.htm
The Fair Labor Standards Act does not mandate specific forms to be used. However, the above information must be kept for at least 3 years. We recommend that the following items be used in your labor documentation:
- Time Cards or Time Sheets
- W-4 Forms
- This form helps you (the employer) calculate the amount of income taxes to be withheld
- Payroll Check Register
- This lists each check that was issued, and the check number, gross pay, taxes withheld, and deductions associated with each check
- W-2 Forms
- Used to report wages paid to employees and the taxes withheld from them.
- Employee Earnings Record
- An individual payroll record prepared for each employee; includes data on earnings, deductions, net pay, and accumulated earnings.
Regular and Overtime Pay
The Fair Labor Standards Act also mandates that regular pay for your employees must be based on a 40 hour work week. Overtime pay must be given to any employee that works over 40 hours per week. Overtime must be paid at 1.5 times the employee's regular hourly rate.
For example, you have a employee that is paid $10 per hour. Their overtime rate will be $10 X 1.5. which would be $15. So, for all hours worked over 40 hours, they will be paid at $15 per hour.
BPA Restaurant/Delivery Pro Payroll Management
For BPA Restaurant/Delivery Pro customers, we have a built in payroll system that allows you to manage your payroll, without needing to outsource to another payroll company. Give us a call at 801-336-3303 for more information on our payroll system.
For more information on labor and payroll management, be sure to check out the Department of Labor website at https://www.dol.gov/. You can also contact them at 1-866-4-USA-DOL (1-866-487-2365).
Controlling Restaurant Labor Costs
Calculate Your Labor Cost Percentage
The first step in controlling labor costs is to figure out your Labor Cost Percentage. Labor Cost Percentage is a metric used by business' to determine labor costs relative to its overall revenue. To calculate your Labor Cost Percentage, use the following formula:
Total Labor Cost/Total Sales = Labor Cost Percentage
ex. $2000 (Labor Cost) / $10000 (Total Sales) = 20%
The restaurant industry standard Labor Cost Percentage is 20%. So, if your Labor Cost Percentage is higher than 20%, here are some tips to help bring this percentage down:
Cross-Training Your Employees
Cross-Training your employees allows managers to schedule fewer employees for each shift. For example, training your bussers to run food to customers. Or, training cooks to serve as bussers during slower periods. If you have employees who can handle multiple jobs, you not only help your business by saving on labor costs, but you will also help the employee by teaching them new skills.
Auditing Employee Breaks and Meals
Make sure that restaurant employees are not taking breaks when they are supposed to. This will diminish their efficiency in taking care of your customers, prepping and cooking meals, etc. Also, be sure to audit employee meals for abuse of this benefit.
Track Server Efficiency
Make sure that your servers are handling orders as quickly as possible. Keep track of sales per employee and the average table time for each server.
Adjust Employee Manning Based on Sales Per Hour
If your slowest hours are from 2pm-4pm, make sure that your restaurant is minimally staffed during those hours. Keep your staff manning at 100% only during your busiest hours.
BPA Restaurant/Delivery Pro Reports
For BPA Restaurant/Delivery Pro customers, we recommend you use the following reports to track and control labor costs:
- Daily Sales and Labor Report (Restaurant System—>Manager Functions—>Restaurant Reports)
- Sales by Product Type and Hour Report (Restaurant System—>Manager Functions—>Restaurant Reports)
- Server Efficiency Report (Restaurant System—>Manager Functions—>Restaurant Reports)
- Print Labor By Job Report (Restaurant System—>Server Clock In Clock Out)