In our recent article on labor scheduling tools, we talked about the importance of building a theoretical labor schedule and comparing that to actual labor.
Today, we’re going to talk about how insights from labor metrics – looking at theoretical time vs. paid time – can help you control both payroll and labor costs and make your business more efficient.
In particular, we’ll go over 8 questions you can ask about your business to get to the bottom of your labor.
What is theoretical time vs paid time?
Theoretical time vs paid time is an important concept for understanding the dynamics of the workplace. Theoretical time represents a plan or expected schedule of when employees should work, while paid time is the actual amount of hours worked.
This distinction matters because employees are paid based on their actual hours worked rather than theoretical time.
It’s essential for managers to strive to have paid time match theoretical time as closely as possible; this allows them to accurately plan their labor budget and ensure that they’re not overspending by paying more than necessary in wages.
On the other hand, if too much difference exists between theoretical and paid times, managers may be at risk of having gaps in coverage or not having enough staff to meet customer needs.
Thus, having a close correlation between theoretical and paid times can help businesses better manage their resources and save money in the long run.
How labor metrics help control payroll and labor costs
Labor metrics are important for understanding the differences between theoretical time and paid time, as well as how labor costs relate to overall payroll.
Labor metrics provide a way for managers to measure the true cost of labor based on how much time is spent working. This is especially important when considering overtime payments.
By tracking employees’ hours in an appropriate manner, companies can ensure that correct wage rates are being paid out, which in turn helps control payroll expenses.
Additionally, with accurate labor metrics, supervisors can gain greater insight into their workforce’s performance, enabling them to make decisions about staffing requirements and identify areas where additional training may be necessary.
Finally, labor analytics can help managers identify common trends across their organization, uncovering potential cost savings opportunities or areas of waste that could be addressed with more efficient processes.
Labor metrics, theoretical time, and paid time: examples and questions to ask
At the end of the week, time and attendance values are typically collected to calculate wages and payroll for the normal “work week”.
A side-by-side comparison of the actual schedule (time and attendance values) and the theoretical labor schedule will reveal a variety of metrics that can be used to manage the workforce.
This practice of comparing the actual schedule against the theoretical labor schedule is commonly called “Actual vs Theoretical” or “AvT”.
For example:
- Which employees routinely arrive for work on time? Consistently reliable employees are valued employees, arriving at work on time, and are the real workhorses of the business. Make sure to reward them for their efforts.
- Which employees are routinely late for work? This can cause a labor shortage during shift changes, and can disrupt other employees. These employees may need to be disciplined for routine tardiness.
- Which employees are routinely early for work? This increases the payroll expense, reducing profit for the business. Disciplinary actions may be required for these employees.
- Which employees do not show up for work, or routinely call in? These employees may need to be counseled and warned that they risk termination, as they are unpredictable in their work habits and lower morale for other staff members.
- Which employees are always available when another employee does not show up? These employees are willing to work on their days off , and should be rewarded for their efforts to keep the business running.
- Which positions are prone to high turnover? Employee turnover is extremely expensive to a business, and identifying areas with high turnover is the first step to take measures to reducing turnover.
- Which staff members are most tenured? Tenured staff are dedicated team members and should be rewarded for their efforts. Every effort should be made to increase the tenure of employees while reducing turnover and increasing profits.
- Which is more costly, the theoretical or actual schedule? How much difference exists between the two schedules?
- If the theoretical schedule is more expensive, management is over-scheduling the work force and may be sending employees home without cause. This often indicates aggravated employees and increase turnover, decreasing profit for the business.
- If the actual schedule is more expensive, management is not scheduling enough work in advance, and is then forced to call employees on their days off. This situation can also create aggravated employees and increase turnover. It often results in unnecessary over-time.
The ideal work environment has a 0% AvT ratio – employees worked when they were scheduled and management accurately identified the business requirements.
Labor is the largest and most controllable expense
Labor, especially in retail and hospitality, is the largest expense which businesses directly control.
Comparing metrics such as Actual vs. Theoretical allows management to maintain control of the business, thereby increasing profit.
Many metrics can be compared manually using Microsoft Excel spreadsheets, but sophisticated scheduling software such as TimeForge can calculate many of these metrics quickly and easily.
Are complicated employee scheduling practices taking up precious time at your business? Are you making the best possible labor schedule? How much turnover is created because of bad, or late, schedules?
Did you know that TimeForge’s employee scheduling tools can reduce turnover, improve retention and increase profits at your business? Sign up today for a free trial!
