Labour cost percentage is your total labour cost divided by total sales for the same period, times 100. Include hourly wages, overtime, salaries and employer costs such as social security, benefits and staff meals. Example: 219,000 ÷ 900,000 × 100 = 24.3%. Track it weekly and schedule against forecast sales.
Quick answer
- Formula: total labour cost ÷ total sales × 100, for the same period.
- Include everyone: hourly, salaried, managers, overtime and employer costs.
- Use sales before VAT and service charge.
- Watch it weekly, and look at sales per labour hour by shift, not just the monthly total.
- Control it with the rota, not by cutting people the week after a bad month.
Michael Clarke is a trained chef and runs Markedine, a restaurant marketing company in Bangkok. This article does not contain affiliate links.
What is labour cost percentage?
It is the share of your sales that goes on paying the team. Together with food cost, it is one of the two biggest controllable costs in most restaurants. Put plainly: food cost creeps one point, labour creeps another, and the monthly P&L review is where you catch it.
When I managed the rooftop Attitude Bar & Restaurant at Avani Riverside, the team was 39 full-time and 17 part-time staff for a 165-seat venue with indoor and outdoor areas. Scheduling, budgeting and daily revenue were all on the same desk. A rota is a spending decision, and that is how it should be read.
How do you calculate labour cost percentage?
- Pick the period: a week or a month, and use the same one every time.
- Add up hourly labour: hours worked × pay rate, including overtime at the overtime rate.
- Add salaried staff: their pay for the period, including managers and the head chef.
- Add employer costs: social security contributions, benefits, staff meals, bonuses and any agency or casual staff.
- Divide by total sales for the same period, before VAT and service charge.
- Multiply by 100 to get the percentage.
A made-up example: 1,200 hourly hours at 70 per hour (84,000) plus 120,000 of salaries plus 15,000 of employer costs is 219,000. On 900,000 of sales, labour cost is 24.3%.
Labour cost calculator
Labour cost percentage calculator
Any currency, as long as every box uses the same one. Nothing you type leaves your browser.
What is a good labour cost percentage for a restaurant?
I will not give you a universal number, because there isn’t a reliable one. Full-service, fine dining, counter service and bars run very differently, and wage levels vary by country and city. Set a target from your own P&L: what is left after food and drink cost, rent and other fixed costs, so that the business still makes money. Then track your trend. A labour percentage that is creeping up month after month is the warning sign, whatever the starting level.
What is prime cost and why does it matter?
Prime cost is food and beverage cost plus labour cost. Many operators watch it as one number because the two trade off: more prep staff can cut waste, and a cheaper rota can push food cost up through mistakes. Calculate both every month, and look at them together. See how to calculate food cost percentage.
How can you control labour cost without hurting service?
- Schedule to forecast sales. Use last four weeks of covers by day and hour, adjusted for holidays and events.
- Stagger shifts so you add people for the peak, not for the whole day.
- Cross-train so one person can cover two stations on quiet shifts.
- Watch overtime daily, not when payroll arrives.
- Cut prep that does not sell. Labour hidden in over-prep is also food waste.
- Fix turnover. Hiring and training new staff costs time and money; at Kingsmen we spent seven years training restaurant and hotel teams, and well-trained teams are faster and stay longer.
- Use a scheduling tool that shows labour cost while you build the rota. Square’s restaurant plans, for example, include labour cost reporting against net sales on Plus and Premium. See 7shifts vs Homebase for dedicated tools.
What is sales per labour hour, and why use it?
Sales per labour hour is sales divided by hourly labour hours. It shows how productive each shift is in a way the monthly percentage hides. A Tuesday lunch with five people on the floor and few covers will show a low number immediately. Track it by day part for a month and you will see which shifts to trim and which to strengthen.
Which mistakes make labour cost look better than it is?
- Mixing periods: payroll for a month against sales for four weeks, or the other way round.
- Using sales including VAT or service charge, which inflates the bottom of the sum.
- Leaving out the owner or head chef because they are on a different payroll. If the business would have to pay someone to do their job, count it.
- Forgetting casual and agency staff paid in cash or through a different account.
- Ignoring opening and closing hours, deep cleans and training shifts.
- Comparing a holiday month with a normal month without noting why sales jumped.
Get these right once, write the method down, and use the same method every month. A consistent number you trust is worth more than a flattering one.
How often should you check labour cost?
Weekly at minimum, ideally daily during the first months of a new rota. Compare the scheduled cost before the week with the actual cost after it, and ask why they differ. Monthly, put labour next to food cost and sales in your P&L review.
Frequently asked questions
What is the formula for labour cost percentage?
Labour cost percentage equals total labour cost divided by total sales for the same period, multiplied by 100. Total labour cost includes hourly wages, overtime, salaries and employer costs.
Should salaried managers be included in labour cost?
Yes. Include everyone on the payroll for the venue, including managers and the head chef, so the percentage reflects the true cost of running the restaurant.
Do employer contributions count in labour cost?
Yes. Include employer social security contributions, benefits, staff meals, bonuses and agency staff. Leaving them out makes the percentage look better than it is.
What is a good labour cost percentage?
There is no universal figure. Set your target from your own P&L and concept, then watch the trend. A steady rise is the warning sign.
How can I reduce labour cost quickly?
Start with the rota: schedule to forecast sales, stagger shifts and watch overtime daily. Cutting staff without changing how you schedule usually hurts service more than it saves.
