Effective Labor Scheduling

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March 01, 2003
Labor | Management
Michael Kasavana, Ph.D, CHTP - kasavana@pilot.msu.edu

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© 2003 Hospitality Upgrade. No reproduction without written permission.

The old adage “time is money” is proven daily in the hospitality business. For an industry facing a shrinking, more expensive labor force, labor scheduling software applications have become popular. Traditionally a tedious, time consuming and error-riddled manual process, the automated construction of shift schedules can free management to focus on other areas of concern. Basically, labor management software deals with containing payroll expenditures, reducing non-productive time, restricting overtime and ensuring shift coverage.

Automated labor management systems provide assistance in forecasting, scheduling, reporting, analyzing and controlling time worked and the use of time worked. Effective labor scheduling can be accomplished through PC-based applications, Web-based applications and POS-integrated applications. Each of these approaches can streamline labor-related processes while enhancing workforce controls. Managers are often surprised to discover the bottom line impact of improved labor scheduling on cost containment.

Cost Containment
While labor cost containment can be accomplished in a variety of ways, most software applications focus attention on lost time and overtime as major strategies for labor savings. Reducing or eliminating lost time, which results from unauthorized early time-in and/or late time-out entries, can represent meaningful savings. Consider the scenario in which a server scheduled to begin work at 9 a.m. clocks-in at 8:45 a.m., but doesn’t report to the dining room to work until 9 a.m. The dining room supervisor will consider the worker reliable and on time, unaware he clocked in 15 minutes early. The payroll office, unaware that the worker was not scheduled to report until 9 a.m., will inadvertently pay for an extra 15 minutes of non-productive time. This additional time wasn’t forecasted by management and therefore results in overspending within the labor budget. Similarly, late clock-outs can represent unexpected additional labor costs, as well as lead to unscheduled, higher-priced overtime. It is important to note that a 15-minute savings for 10 employees per day, for a 360-day year, at an hourly rate of $8, equals $7,200 annually.

Controlling Lost Time
In a labor management system, early sign-ins and late sign-outs are tightly controlled. Even though some labor scheduling systems allow employees to clock-in prior to their scheduled start time, the system will not authorize wages until individually assigned scheduled times occur. In the scenario above, for example, the server may have clocked in 15 minutes early, but the system will not authorize a payroll transaction to begin until the scheduled time of 9 a.m. arrives. Although employees may be allowed to punch-in early, the system will not count time until the authorized schedule time has elapsed. Similarly, staff can clock-out late, but will not be paid beyond the limit of the scheduled shift termination time. For an employee to be paid outside the parameters of a stored labor schedule requires managerial/supervisory authorization. Hence, exceptions to predetermined scheduled times, arising from unforeseen circumstances, can be adjusted through the system’s override procedure.

Overtime Monitoring
As many practitioners can attest, controlling overtime can be especially critical to labor cost containment. While management often finds the unpredictability of business doesn’t always allow for the elimination of overtime, labor management software does provide a means to restrict overtime to pre-approved overtime. In other words, with an automated process there are few, if any, unanticipated overtime expenditures. Most operators cite the monitoring of overtime as a key factor in the successful implementation of a labor scheduling system. The system allows staff to earn overtime only if it occurs in a controlled environment. In essence, management is notified as an employee’s hours worked approach the overtime threshold. Then, the system only permits overtime to occur with managerial approval.

Shift Coverage
In a labor scheduling software application, shift coverage is accomplished through a series of forecasting, scheduling and analysis functions. Labor forecasts are typically constructed based on historical data and intuitive guesswork. Some labor management systems offer operators the option of system-developed schedules or provide an accessible file for user determination. An analysis of forecast information and previous schedules can help reveal weak or limited coverage periods requiring reconsideration. It is for this reason that software packages provide users the capability to finetune or modify preliminary system-generated schedules. In larger firms departmental managers may generate and refine departmental schedules and then submit them to the payroll office for official entry into the system. From there, schedule data can be downloaded to the system time clocks for monitoring and control. Finalized schedules are used to establish authorized payroll expenditures through sign-ins and sign-outs.

Application Functionality
While not all labor scheduling systems operate identically, the following six functions are representative of system capabilities:

1| Labor requirement forecasting
2| Employee scheduling
3| Time and attendance recordation
4| Overtime/lost time monitoring
5| Labor cost analysis
6| Payroll processing

Labor requirement forecasts are developed from performance parameters such as sales transactions or budgetary information. Employee scheduling is designed to ensure shift coverage based on employee availability, skill inventory and labor requirement forecasts. It is for this reason that a majority of labor management systems are considered scheduledriven systems.

Time and attendance events can be recorded on initiation by time card, employee badge, keypad or biometric entry. Systems aim to classify captured time as regular time, overtime or special time. Each of these time categories being associated with different pay rates and scheduling considerations. This approach enables the system to separate individual events for labor costing by job. For example, a property catering a private party would be able to identify each employee assigned to the function and apply the percent of time worked to the specific event(s). This allows labor cost allocation and analysis by event, department and employee. This is an inherent strength of a labor scheduling system.

Daily labor reports, labor distribution reports, budget to actual reports, projected overtime report and the like, combine to provide a base of financial information for managerial consideration. Although labor scheduling software typically does not generate payroll registers and paychecks, they do perform important pre-calculations that simplify eventual completion of the payroll cycle. In addition to these features, a labor management package may also possess a sales and tip data collection function, often essential to effective human resources management. Employees who are required to track sales and/or tips can enter this data at time of clock-out and the data will be tracked for them. Similarly, management can aggregate revenue data for determination of tip pooling shares and government reporting. Systems with such capability are capable of generating sales performance reports, tip allocation reports, detailed distribution reports and related reports.

Component Structure
Common components of a labor scheduling software package include: a) workforce database; b) authentication media; c) scheduling module; d) report generator; and e) application integration. The workforce database, also referred to as the employee database, contains such entities as multiple job codes and rates of pay, availability data and shift restrictions. Authentication media are used to establish data entry. Newer time-based systems allow operators to select among several time recording media: traditional time cards, magnetic stripe plastic cards, electronic keypad and biometric recordation.

Traditional time card systems rely upon printed punches to record time in/out data. Magnetic stripe cards, which can also serve as employee identification badges, provide enhanced sign-in and sign-out functionality. A concern with magnetic stripe cards is that, unlike a time card format, there may be no provision for providing verifiable documentation for employees. Cardless and badgeless systems require employees to identify themselves through keypad input. Since employees may desire a printed copy of time and attendance data to ensure proper payroll processing, some keypadbased systems provide output through an attached printer. Similar to a keypad entry, a biometric device does not require a card or badge for entry. A physical characteristic (e.g. fingerprint, handprint or retina scan) establishes authentication of employee and initiates a sign-in or sign-out entry procedure.

As expected, the scheduling module is the main focal point of a labor scheduling software application. The scheduling module usually contains an employee skill rating grid, a forecasting model and an overtime alert. Many vendor systems enable the user to enter a preferred employee schedule and then allow the scheduler to manipulate entered data.

A report generator governs system output and can be preset for automatic report generation (e.g. day, week, month or year), workforce statistics and specialty reports by employee, position, shift, department, unit and other metrics. While there are a variety of reports available through a labor management system, popular reports include:

  • Work schedules – Generation of work schedules by department, employee, date, shift, hour, function and other criteria. Schedules built upon worker profile, shift coverage needs and worker availability data
  • Overtime reports – A list containing the names of employees approaching or incurring overtime pay
  • Tardy/absent report – Attendance abuse and lateness are tracked and reported
  • Projected hours report – A projection of scheduled hours and expenditures that is comparable to actual data after the fact
  • Availability report – A summary of work shift availability and skill index data for construction of shift coverage plans
  • Labor distribution report – A breakdown of labor hours by employee, unit, department, function or other criteria

Reports typically summarize regular, overtime and special time totals and assist in labor allocation decisions.

An increasingly important aspect of a labor scheduling system is its ability to interconnect with other hospitality applications. The ability to integrate and share data with a point-of-sale (POS) system, general ledger accounting module, financial management package, payroll accounting and other external applications helps differentiate labor scheduling software products. Data polling enables exportation of captured data from an authentication device to other application software.

For example, consider the benefits of integrating payroll processing. Since payroll practices vary widely, a labor management system may need to be interfaced to a payroll accounting module to produce a finalized payroll ledger and/or payroll checks. Labor scheduling software is primarily limited to time and attendance accounting and the computation of gross pay. Payroll processing and paycheck generation can be accomplished via an add-on program or through exporting to a specialty application package. The two primary objectives of automated labor management systems are cost containment and improved shift coverage.

PC-based Applications
PC-based labor management applications may require two hardware components: a time capture (i.e. time clock) device and a desktop computer. An automated time capture device may be intelligent and/or programmable. Most clock devices store critical data internally and operate independent (offline) of the file server. The main purpose of a time clock is to capture punches (sign-ins and signouts) data for eventual transmission to a remote payroll accounting program. Time clocks typically contain microprocessors with plug compatibility for connecting monitors, keyboards, printers and communication equipment. In essence, some time clock devices have evolved into stand-alone computing units.

Web-based Applications
There are an increasing number of software products being marketed as Web-based (or Web-hosted) workforce management solutions. Most application packages offer enhanced forecasting capabilities, scheduling functionality and more flexible interfaces for extensive report generation. A Web-based application tends to be structured as a closed-loop system for managing a single-site labor force (including forecasting, scheduling, time and attendance and real-time reporting). In addition, a graphical snapshot capability with actionable alerts and consolidated reports can be configured as essential system components.

POS-integrated Applications
Automated work schedules often require modification as sales volumes and availability of workers change. In a seasonal business, for example, perhaps only one-third of the peak workforce may be retained. Developing a labor scheduling process designed for a small workforce becomes problematic when expansion to peak-time staffing is needed. The dynamic nature of seasonal business fluctuations can lead to less than ideal system utilization, as the data required during peak business volumes can bring the system to a halt. As workers’ schedules change and business needs vary, a labor management system may struggle to keep pace. It is for these reasons that some integrated applications have begun to appear in the marketplace.

Consider sophisticated labor scheduling software packages that rely upon POS data to populate workforce forecasting and scheduling modules. The POS data is used to determine the jobs, tasks and workload necessary to optimally operate the hospitality enterprise. By dynamically matching worker profile, skill sets and availability data to an internally generated labor forecast, the system is able to construct shift coverage (by worker and department) within budgetary constraints. For example, in fall 2002 Timera, Inc., a workforce management application solutions provider for the retail market, formed an alliance with Breakaway International, a foodservice Windows-based POS supplier. As a result of this alliance, Breakaway has integrated Timera’s workforce management software into its restaurant back office applications package in an attempt to streamline the labor scheduling process. Within this seamless POS framework, the restaurant gains an effective transaction processing system coupled with a labor scheduling process that assures coverage for all workforce positions based on customer traffic and staffing needs. Although still in its infancy, an integrated POS to labor scheduling approach appears to possess significant potential.

Some vendors claim that effective implementation of a labor management system can lead to a reduction of 8 percent to 10 percent in labor expenditures. Many of the savings are derived from more flexible shift coverage, reduced lost time, controlled overtime and the ability to assign varying pay rates per job code.

Michael L. Kasavana, Ph.D., CHTP, is NAMA Professor in Hospitality Business, School of Hospitality Business, Michigan State University. He can be reached at kasavana@pilot.msu.edu.

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