Restaurant labor cost percentage: the formula and how to use it
After food, staff are your biggest cost. Labor cost percentage shows how much of your sales go on paying people, and whether this week’s schedule was too heavy or too thin.
The formula
Labor cost % = total labor cost ÷ sales × 100.
Example: a week with $18,000 in sales and $5,400 in labor cost.
- 5,400 ÷ 18,000 × 100 = 30%
What counts as labor cost
Include everything you pay because someone works for you: wages and salaries, overtime, payroll taxes, and benefits such as paid leave or insurance. Counting only wages makes the number look better than it is.
What is a good labor cost percentage?
Many restaurants aim for a labor cost somewhere around 25–35% of sales, depending on the service style. Table service and late-night kitchens usually need more people per dollar sold than a counter-service café. A more useful target is your own: look at your best weeks and use them as the benchmark.
Owners also watch prime cost: cost of goods sold plus labor cost, as a percentage of sales. Many operators try to keep it around 60–65%.
Why overtime matters
Overtime hours cost more than ordinary ones. In the US, for example, overtime is commonly paid at 1.5 times the regular rate above a weekly threshold, and the rules vary by country and state, so check yours. A schedule that quietly pushes a few people over their hours every week adds up.
Schedule against sales, not habit
- Plan by day and by part of the day, using your own sales history for the same day last week and last month.
- Track sales per labor hour (sales ÷ hours worked) to compare services.
- Stagger starts and finishes so people arrive for the rush and go when it ends.
- Cross-train so one person can cover two stations.
- Review after the week: planned hours against hours actually worked.
How Fresh helps
In Fresh’s staff and scheduling screen the weekly schedule shows each day’s labor cost and labor percentage as you plan. Hours worked, overtime and pay are worked out on the server from shifts and clock-ins, with your own overtime multiple and labor limits as settings.
Questions
How do you calculate labor cost percentage?
Divide total labor cost (wages, overtime, payroll taxes and benefits) by sales for the same period and multiply by 100.
What is prime cost?
Prime cost is cost of goods sold plus labor cost. Restaurants often track it as a percentage of sales.