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A Breakdown of Labor Costs and How to Minimize Them

a breakdown of labor costs and how to minimize them
Daphne Blake

By Daphne Blake

Minimize Labor Costs

As a manager of a restaurant or retail store, knowing what constitutes labor costs can ensure your employees receive a fair day's wage for a fair day's work at the end of each month. Besides the salary they are entitled to, this also includes non-wage costs i.e. any contributions that are payable by the employer. However, you can also incur high labor costs if you are not in touch with what your business needs and what changes need to be made to increase productivity.

What are Labor Costs?

Labor costs refer to the wages that are owed to employees along with benefits and payroll taxes that are paid by the employer. If you are a manager or employer in the food or service industry, you can get an accurate figure of your labor costs by dividing the labor of the front of the house with the back of the house labor. The former will include your waiters, floor managers, bartenders, hosts, etc and the latter will include dishwashers and the kitchen staff. If your restaurant is small, include the benefits that you pay employees in those costs as well such as health insurance.

Preventing High Labor Costs

According to industry standards, labor costs should fall between 30 to 35% of a restaurant's total sales. The salaries for managers should make 10% of the labor costs and 20 to 25% of the remaining should be kept for employees. The costs will also vary according to how well your restaurant performs during busy and slow seasons, but you can nip issues in the bud if you average labor costs on a weekly basis to figure out how much you will need to spend on them each month. The figure will aid you in figuring out your annual labor costs.

If the figure is more than industry standards then cutting back on staff when you don't need them or during a slow service might be a good idea. This includes both front and back of the house staff; notify both managers so they can inform their teams and schedules their shifts accordingly as well. Besides preventing overstaffing, it will eliminate the need for costly part-timers and decrease labor costs.

Another factor that can increase labor costs is low employee productivity. To increase it and decrease labor costs at the same time, cross training the staff will ensure a full service without the need of extra hands. For instance, if you train some waiters to be barkeeps, your servers can take and make drink orders. Similarly, you can train members of the kitchen staff on multiple stations so you won't have to pay part timers to work during a busy service.

Preventing high labor costs can help your business grow, but it can falter if your employees are not punctual or take too many days off. With payroll software such as Zip Clocks, you can monitor each of their shift timings, prevent high labor costs by over scheduling, remain in accordance with labor laws , switch shifts easily in case an employee is absent and make accurate payrolls as well. All of your employees will be listed along with their weekly hours and projected hours to overtime right next to their phone numbers.

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