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Four Ways to Beat Your Restaurant Labor Budget

restaurant labor budgetLabor budgets is part of the daily conversation.  The restaurant employees are paid hourly and hope to "get more hours" while the management team is focused on beating the budget.  You are tired of talking about it and hearing about "cut labor".  In fact, many dwell on the labor budget to the point of needing therapy.  "Schedule cops" instead of leaders are developed.  To break new barriers and not only meet but beat labor budgets, old mindsets must be left behind to make room for better solutions. 

Tips for controlling labor costs in a restaurant to consider:

Schedule based on the quarter hour

The purpose is not to nickel and dime every minute, it is to create smooth and productive transitions for team members as they arrive and depart.  Scheduling the bulk of the restaurant team to arrive and depart at the same time creates a cluster of “hellos” for 30 minutes.  Productivity is impossible and efficiencies dwindle.  Execution excellence drops to minimum as the shift change occurs.  Early morning becomes “coffee hello” and the later nights become a time for keeping company instead of meeting deadlines.  By scheduling based on quarter hour increments; productivity increases, efficiency improves, supervisors have more opportunity to connect with individual team members and there is an improved focused on what is most important:  The Guest.

Budget for 10% less

Question:  Do you believe that if sales increased your team would rise to the occasion and take care of business?  Do you believe they have the skill to continue to take care of guests and exceed expectations unexpected sales bump occurred? Would a 10% sales increase?  Instead of 100 guests, there would be 110 which is easily accommodated for.

The answer to this question from general managers is almost a "YES.  10% more can be handled by my team."

If you believe that your team can handle the 10% unexpected sales increase and continue to excel, schedule for 10% less sales the next week.  If sales drop slightly because of unexpected events, there is much less concern for “cut labor”.  Should sales maintain at their “normal average”, the team that you believe in will make the necessary adjustments. 

New habits and routines will be needed but in a short time, the new adjustments will become the natural order of things.  At first there is disbelief.  "We will hurt service".  More times than not, this is not the case because thought is invested into the plan and communication paves the way to success.

 Labor Productivity vs. Labor %

Scheduling based on labor productivity (Sales / labor hours) is an excellent method to do on the fly calculations and for those who rely on fingers and toes for math, labor productivity shines.  Labor productivity relies on # of hours and there is no extrapolation necessary when on the phone talking to the supervisors or via an email which talks about “labor”.

Since the automated tools have calculated and estimated labor cost percentages, there are fewer people who can grab the calculator and extrapolate how many hours it takes to keep the labor at a specific percentage. 

For teaching new supervisors about labor control, labor productivity remains a common language since the only two variables are Net Sales and Labor Hours used.

By having a simpler method to track and communicate expectations, more awareness and an understanding for how to schedule and control labor occurs (even when there is no computer handy). 

The primary leader must have the ability to control the average wage and set up a schedule based on productivity.  Since computers now do most of the work, average wage can be monitored easily.

Hire a Vet and receive tax credits  (Hire Heroes Act of 2011)

The Work Opportunity Tax Credit (WOTC) is a Federal tax credit incentive that the Congress provides to private-sector businesses for hiring individuals from nine target groups who have consistently faced significant barriers to employment.

The main objective of this program is to enable the targeted employees to gradually move from economic dependency into self-sufficiency as they earn a steady income and become contributing taxpayers, while the participating employers are compensated by being able to reduce their federal income tax liability.

WOTC joins other workforce programs that help incentivize workplace diversity and facilitate access to good jobs for American workers.

On November 21, 2011, President Obama signed into law the Vow to Hire Heroes Act of 2011, which amends and expands the definition of WOTC's Veteran target groups

You will want to review ETA's WOTC publications provide a plain-English overview of the program:

Here are the 3rd Edition of ETA Handbook No. 408 for the WOTC Program, published on November 2002 and its August 2009 Addendum, provide additional information on this program:

Details of Tax Incentives for Hiring Veterans

The Act encourages employers to hire qualifying veterans by expanding and extending the existing Work Opportunity Tax Credit (WOTC), which was set to expire after December 31, 2011.  The Act:

  • Extends the expiration date of the WOTC for qualified veterans, so it now applies to employers hiring qualified veterans who start work on or before December 31, 2012.
  • Increases the existing WOTC available to employers hiring veterans with service-connected disabilities who have been unemployed for at least six months, from 40 percent of the first $12,000 of wages (up to $4,800 per worker) to 40 percent of the first $24,000 of wages (up to $9,600 per worker).  The WOTC for employers hiring veterans with a service-related disability within one year of discharge from service remains at 40 percent of the first $12,000 of wages (up to $4,800 per worker).
  • Expands the availability of employer tax credits by creating the Returning Heroes Tax Credit that provides a credit to employers hiring qualified veterans who have not suffered a service-related disability.  The new credit is 40 percent of the first $6,000 of wages (up to $2,400 per worker) for qualified veterans who have been unemployed for at least four weeks, and 40 percent of the first $14,000 of wages (up to $5,600 per worker) for qualified veterans who have been unemployed for at least six months.
  • Streamlines the process for certifying that a veteran meets the definition of a qualified veteran.
  • Allows tax-exempt organizations hiring qualified veterans to receive a credit against payroll taxes calculated in the same way that the WOTC is determined, but using 26 percent of the qualified veteran’s wages instead of 40 percent of wages.  Only wages for services in furtherance of the tax-exempt organization’s exempt purpose can be used to determine the credit.  Prior to the Act, no credit was available to tax-exempt organizations.
  • Continues to provide that no credit is available if the worker performs less than 120 hours of service for the employer, and that if the worker performs less than 400 hours the percentage of wages used to compute the credit is reduced from 40 percent to 25 percent (or from 26 percent to 16.5 percent in the case of a tax-exempt organizations).  

Tens of thousands of dollars have been saved with these special programs in my  many years in the restaurant business. Thousands of dollars can be saved while putting veterans back to work. 

Extreme focus and conversation each day about labor costs will drive the team to think of nothing else.  Since labor is the one line on the P&L which can be impacted immediately, cutting labor may be used to solve other problems on the Profit & Loss Statement vs. getting to the real issues. 

The most important element to beating your labor budget in the restaurant is:  Increase Sales. (Which is primarily what I like to focus on.  If there is only conversation about cost control; at the end of the month success with lower costs is not going to sustain the business long term.

Consider scheduling on the quarter hour, have faith in the team by scheduling based lower sales, use “labor productivity” as the means to track and communicate labor and most of all; consider hiring a hero.


Topics: Labor Budget Productivity