Use Your Data To Catch Restaurant Labor Fraud

Restaurant Labor Theft

According to the American Payroll Association (APA) almost 75% of U.S. businesses are paying employees for time not actually worked. The APA also indicated that loss, due to time theft, can run from 4% to 7% of Gross Payroll. Assuming the APA estimates for theft are accurate and your cost of labor is running around the industry average of 30% then it would be safe to further assume that a restaurant with $1,500,000 (‘$1.5M’) in sales could be losing $18K to $31K per location on an annualized basis.

Time Is Money, Literally

You’ve probably started keeping an eye on cash theft but one fraud detection area you might not even think to look – Labor. To use an all too often quoted phrase - time is money but in this case, it literally is and could be costing your company without anyone the wiser.

If your company is like many today, then at a minimum, you’ve deployed a timekeeping system and require your employees to clock in and out when they come and go and take breaks. Many of the newer systems are now equipped with the capability (biometrics) designed to eliminate "Buddy Punching", which is estimated to cost employers up to 2.2%. Buddy Punching is exactly as it sounds – you want to leave your shift early and ask your buddy to punch you out when he leaves, or you call him when you’re running late and get him to punch you in well before you arrive.

Beyond Buddy Punch detection most time punch systems are equipped with the ability to perform ‘Rounding’. These are generally software controlled and the employer, for example, can set the rounding for 1 minute, 5, minute or 15 minute intervals. If you selected rounding by the quarter hour, then it’s split equally at 7.5 minutes. Therefore, if an employee clocks in between 8:53 and 9:07 it will be recorded as a 9:00 punch.

Let’s assume the setting is at 15 minutes and the employee is supposed to start work at 8:00 AM. If they punch in early (7:52 AM) their time will be adjusted to reflect 8:00 AM and the same for punching in (8:07 AM) late. Looking at this from a neutral perspective, rounding is supposed to equal out (over time) the late/early punches so both parties (employer/employee) are treated fairly. There have been a number of lawsuits over this and it’s not my intention to go into any of that here. I think it’s safe to say that an employee with the intent to minimize their actual work time could consistently punch in late and out early without penalty to their paycheck due to rounding. Setting up a report that will show who is consistently doing this will allow you to address the situation and regain your lost productivity.

Another way employees can make more money and circumvent the Rounding issue altogether is to simply not clock out. Let's say every 4–7 days I fail to punch out and when the manager asks when I punched out, (so he can get it corrected), I tell him I worked until 9:00 PM when, in fact, I only worked until 8:30 PM. Combining this with the other ways I’m already manipulating my time, it’s easy to see how I can create a larger paycheck for me and less money in the bank for you.

Taking Preventative Measures

Having the capability to craft a report that will show any/all individuals that had missing punches over a given period of time, preferably several weeks or months, will surface not just those individuals that have missing punches but ones that are repeatedly missing them. Sorting this list highest to lowest will help you see who the worst repeat offenders are.

Next, combine this information with a report that filters for early and late punches to see if the same names show up. When you see overlap you have a better idea of who may be gaming the system.

Last but not least, take steps to speak with these individuals, re-communicate your company’s policies around labor to all employees, work with your managers to enforce these policies uniformly and continue to monitor, measure, report and adjust for the best results.

Summary

The steps we’ve described cover some of what you need to be aware of and a few ways to track any individuals that may be stealing by manipulating their work hours. Once you have your exception list in hand, the individuals identified need to be confronted and a resolution for next steps needs to be identified. That can include something as simple as more training is needed or more drastic; termination required. In most, if not all, of these situations having an ability to track the time to resolution and the resolution itself can be equally helpful.

Having a well-rounded approach that helps you see how quickly each incident is being addressed along with its outcome can help you / your team ensure issues are being addressed in a timely manner and as we stated at the beginning; time is money. Having the ability to quickly locate and remove individuals that are stealing time or money can have a significant impact on your bottom line. Just ask yourself - What could you do with an additional $18K - $31K per location?

Check out how OTG Management is using Mirus for loss management purposes: