Labor cost percentage compares total labor cost to sales. It helps restaurant operators understand whether the schedule, sales volume, service model, wage rates, and management coverage are working together.
Restaurant labor cost formula
Labor cost percentage is calculated by dividing total labor cost by sales, then multiplying by 100.
Labor cost percentage = total labor cost ÷ sales × 100
Total labor should include hourly wages, overtime, salaried labor, manager salaries, payroll taxes, benefits, workers’ compensation, bonuses, and other labor-related costs where applicable.
Labor cost percentage example
If weekly sales are $24,000 and total labor cost is $7,800, the labor cost percentage is 32.5%. That means 32.5 cents of every sales dollar is going toward labor for that week.
Why labor percentage moves
Labor percentage can rise because wages increase, sales fall, overtime grows, training hours increase, prep takes too long, or managers schedule based on habit instead of forecast. Labor percentage can also move when the sales mix changes, catering orders require extra prep, or slow periods are staffed too heavily.
Better labor control
- Schedule to forecasted sales, not last year by memory.
- Watch overtime before the week is over.
- Separate prep, service, cleaning, catering, and management labor.
- Track labor dollars per sales hour for busy and slow periods.
- Compare labor against guest count, order count, catering volume, and sales mix.
- Review whether slow-day staffing matches actual demand.
Common labor cost mistakes
- Leaving payroll taxes, benefits, manager salaries, and workers’ compensation out of labor cost.
- Comparing labor from one period with sales from another period.
- Waiting until payroll closes to notice overtime.
- Using the same schedule for slow days and busy days.
- Ignoring prep labor, training hours, catering labor, and cleaning labor.
Labor cost percentage FAQ
What is labor cost percentage?
Labor cost percentage is total labor cost divided by sales, multiplied by 100. It shows how much of each sales dollar goes toward labor.
What should be included in restaurant labor cost?
Labor cost can include hourly wages, overtime, salaried managers, payroll taxes, benefits, bonuses, workers’ compensation, and other labor-related expenses.
Why does labor cost percentage go up when sales drop?
If staffing stays the same while sales fall, labor cost becomes a larger percentage of sales. This is why slow periods, weather, seasonality, and poor forecasting can push labor percentage higher.
How often should restaurants review labor cost?
Restaurants should review labor cost weekly at minimum. Many operators check labor daily so they can adjust schedules before overtime or slow sales damage the week’s profit.