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Measuring and Managing Labor Costs

No single measure can be used to evaluate labor productivity; management must employ multiple measures collectively. Management must have a better index of labor productivity and no single measure can efficiently accomplish that. Therefore, additional measures are needed to properly analyze labor costs. The additional information needed is readily available as it is compiled on a daily or weekly basis. These measures are:

  • Covers per labor hour
  • Labor cost per cover
  • Labor cost per labor hour

Where do you start? Each time payroll is processed; total labor hours by job category are tallied. Management will compare actual hours worked to those originally scheduled and look for variances. If hours worked are greater than scheduled hours, they will investigate to determine the job category where the variance occurred.

Employee schedules are determined not by revenue but by covers or what you might refer to as customer counts.  The "covers per labor hour" is perhaps the best indicator of labor productivity because it is not distorted by the way sales are affected by price increases and discounts. Although some drops in customer counts occur in the long run when prices are increased, covers per labor hour remains the most effective indicator of employee productivity. The number of covers per labor hour is calculated for each job category as well as for the entire payroll by dividing total labor hours by the customer count.

The "labor cost per labor hour" is another productivity index. It is calculated by dividing total payroll by total labor hours. When calculated by respective job categories, one can readily see the wage differentials between jobs. This information can assist management in establishing wage ranges for each job category. 

The third index of productivity is the "labor cost per cover." This tells us how much labor is used to serve each customer that comes into your restaurant. The total payroll is divided by the number of customers. Analysis of this index by job category will show a very wide spread between categories like hostess/cashiers, servers and cooks. The averages in each job category are controlled by the number of employees, the average hourly wages, and the number of hours worked.

There are some great labor scheduling tools available to help control costs, save management time building schedules and keep your employees informed and connected. There is no excuse to be using spreadsheets or substandard scheduling applications. It also means that finding the right software provider will likely mean finding the least expensive provider that integrates with your existing POS system and payroll software.

PeachWorks Schedule allows you to spend less time creating schedules and managing conflicts and lets your employees view their schedules and manage availability requests from the internet or their mobile phones. Learn more here.