How to Calculate Labor Cost Percentage

Labor cost percentage is total labor cost divided by total sales, times 100: Labor Cost % = Total Labor Cost ÷ Total Sales × 100. "Total labor" means wages plus payroll taxes, workers' comp, benefits, and paid time off — not just what's on the paychecks. Most full-service restaurants target 25–35%; quick service runs closer to 20–30%. Together with food cost, labor makes up your prime cost, the number that decides whether the restaurant makes money.

The labor cost formula

Labor Cost % = Total Labor Cost ÷ Total Sales × 100

Simple — except that most owners plug in the wrong numerator. Total labor cost includes:

• Hourly wages
• Salaried managers and chefs (yes, your own salary if you take one)
• Overtime premium
• Employer payroll taxes: Social Security and Medicare (FICA), federal and state unemployment
• Workers' compensation insurance
• Health insurance and other benefits you pay for
• Paid time off, sick pay, and bonuses
• Payroll processing fees

The add-ons typically run 10–15% on top of gross wages, and in some states with high workers' comp rates for kitchen staff, more. Ignoring them makes your labor look two to four points cheaper than it is — which is exactly the margin between a restaurant that's fine and one that's quietly losing money.

Worked example 1: a full month

Labor cost %: $28,000 ÷ $95,000 × 100 = 29.5%

Using wages alone ($24,600) would show 25.9% — a number that looks great and is wrong.

Worked example 2: one day, one shift

Daily labor is where you actually manage the number. Say a Tuesday:

Labor: $1,689 ÷ $4,100 = 41.2%. That's a Tuesday problem: too many hours for the sales. The fix isn't "cut labor" in general; it's fewer scheduled hours on Tuesday specifically. That's the whole point of calculating by day and by daypart instead of by month — you find out which shift is overstaffed.

What's a good labor cost percentage?

Fine dining runs higher because service is the product; bars run lower because a $14 cocktail takes a minute to make. Judge your number against your concept and against your own history, not against a single national average.

The other half of the picture is food cost: a scratch kitchen with a high labor number often has a low food cost, and a place buying pre-prepped product sees the reverse. That's why the combined number matters more — Understanding Prime Cost and Why It Matters explains the trade-off, and most healthy restaurants keep the two together at or under 60–65% of sales.

A second lens: sales per labor hour

Labor percentage tells you whether you're spending too much. Sales per labor hour (SPLH) tells you whether the people you scheduled were productive:

SPLH = Sales ÷ Total Labor Hours

The Tuesday above: $4,100 ÷ 80 hours = $51 per labor hour. If your Friday runs $85 per labor hour, Tuesday is either overstaffed or under-marketed. Track both numbers; percentage catches cost, SPLH catches scheduling.

How to bring labor cost down without hurting service

1. Schedule to a sales forecast. Look at the same day last year and the last four weeks, forecast covers, then staff to that — not to a fixed template. How to Forecast Sales to Schedule Staff is the method; Building an Employee Schedule That Controls Costs turns it into a roster.
2. Stagger shifts. Bring people in as volume ramps and send them home as it drops, instead of everyone clocking in at 4 and out at 11.
3. Cross-train. Staff who can flex between host, server, and bar let you run one body lighter on slow shifts and cover call-outs without overtime.
4. Kill overtime at the source. Overtime is 1.5× wages — a scheduling problem disguised as a labor problem. Check hours on Thursday and fix anyone trending past 40 before the weekend. Understanding Overtime Rules for Restaurants covers the rules, including the tipped-wage trap.
5. Reduce turnover. Each hourly exit costs $1,500–$6,000 in recruiting, training, and lost productivity. Retention is a labor-cost strategy.
6. Let technology absorb busywork. Online ordering, tableside handhelds, and a kitchen display screen shave labor hours without cutting service. A modern all-in-one like Cobblestone POS includes scheduling and time clock alongside the POS, so labor hours and sales land in the same report and you can see labor percentage by day without exporting anything.

Calculate labor cost every week and compare it to sales. A number that drifts up two weeks in a row is your earliest warning of a scheduling or staffing problem — long before the monthly P&L shows it.

Frequently asked questions

Should the owner's salary be included? If you work in the restaurant and pay yourself, yes. If you don't take a salary, add a reasonable manager's wage anyway when you evaluate the business — otherwise you're hiding labor cost in your own unpaid hours.

Do tips count as labor cost? No. Tips are paid by guests, not by you. The cash wage you pay tipped employees does count, as do the payroll taxes on reported tips.

Is 30% labor cost good? For casual full service, yes. For a counter-service concept it's high; for fine dining it's lean. Compare to your concept and your trend.

Weekly or monthly? Weekly to manage, monthly to report. Daily by shift if you want to actually fix it.