Labor cost
Restaurant labor cost percentage, and how to actually use it
Most owners can quote their food cost percentage from memory and cannot tell you last week's labor percentage without opening three tabs. Labor is usually the larger of the two. This page covers how to calculate it, what belongs in it, and how to use it before the week runs instead of after.
The formula
Labor cost percentage = total labor cost ÷ net sales × 100
If you spent $9,200 on labor in a week where you took $31,000 in net sales, that is 9,200 ÷ 31,000 = 0.297, so 29.7 percent.
The arithmetic is not the hard part. Both inputs are, because every operator defines them slightly differently and then compares their number to somebody who defined them another way.
What belongs in total labor cost
- Wages for every hour worked, including the overtime premium rather than just the base rate.
- Employer payroll taxes. This is the line most often left out, and it is not small.
- Benefits you pay, if any.
- Salaried management, if you want the true cost of running the business rather than only the part you can flex week to week.
Use net sales, not gross
Net sales means after discounts, comps and refunds, and it should not include sales tax. Sales tax was never your money. Including it inflates the denominator and quietly improves every percentage you calculate, which is a pleasant way to be wrong.
Why the benchmark you read online probably does not apply to you
Published labor benchmarks lump together businesses that have almost nothing in common. A quick service counter, a coffee shop, a bar, and a full service restaurant with table service have fundamentally different staffing shapes. Comparing your number to a blended average across all of them tells you very little.
A more useful comparison is your own business over time. If you ran 28 percent through spring and you are at 33 percent now, that gap is real, it is yours, and it has a cause you can find. That is worth more than knowing where you sit against a national figure built from restaurants unlike yours.
Labor also has to be read next to food, not on its own. The two together are your prime cost, and a restaurant can hold a respectable labor percentage while still failing, if food cost drifted at the same time. Labor cost versus food cost covers which one to attack first when both are high.
The number is only useful before the week runs
Calculating last week's labor percentage is bookkeeping. You cannot un-schedule a shift that already happened. The version of this that changes anything is checking next week's draft schedule against the sales you expect, while it is still a draft.
That means having a forecast worth checking against, which is covered in scheduling to a sales forecast. It also means seeing what a change costs in coverage, not only in dollars. Cutting four hours from a Tuesday is easy to agree to until it is the four hours that were holding the shift together.
How Smooth Ops does this
The Schedule module reads shifts and sales from Square and gives you labor as a percent of sales each week, with overtime and payroll tax counted. Next week's draft is checked against the forecast, with suggested trims priced in dollars, and coverage gaps and missed clock-outs flagged with the fix next to each one.
It is $25 a month per location, or $99 for every module. 30 days free, no credit card.
Labor cost percentage, answered
What is a good labor cost percentage for a restaurant?+
It depends far more on your format than on your management. A counter service cafe with three staff on at a time runs a very different number from a full service restaurant with servers, bussers, a host and a line. Rather than chasing a number you read somewhere, work out what your own business has actually run at over the last few months, then decide whether that is sustainable against your prime cost.
Does labor cost percentage include payroll taxes and benefits?+
It should, and this is the most common reason two owners quote wildly different numbers for similar restaurants. Wages alone is not what labor costs you. Employer payroll taxes, overtime premiums, and any benefits you pay are real money leaving the business. A percentage that counts only base wages will flatter you by a few points.
Should I include salaried managers in labor cost?+
Include them if you want a true picture of what it costs to run the business. Some operators track hourly labor separately because that is the part they can change week to week, which is a reasonable working view. The important thing is to pick one definition and keep it, because switching between them makes your own trend meaningless.
How often should I check labor cost?+
Weekly, because that is the cycle you can actually act on. Monthly tells you what happened after it is too late to change it. Checking next week's draft schedule against your expected sales before you post it is more useful still, because at that point the number is a decision rather than a result.
Why is my labor percentage high on slow weeks?+
Because a large part of restaurant labor is fixed regardless of how many covers you do. Somebody has to open, prep, and be behind the counter whether it is busy or dead. That is why the same schedule produces a fine percentage in a strong week and an alarming one in a quiet week, and why scheduling to a sales forecast matters more than scheduling to a habit.
Know your labor cost like you know your food cost
Connect Square and see labor against sales every week, with next week checked before you post it.
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