What it measures
Labor cost percentage is the share of sales spent on your people. It is the second half of prime cost and, unlike food, it can be adjusted almost in real time through the schedule — which makes it the fastest lever an operator has in a slow week.
Labor cost % = (total labor cost ÷ total sales) × 100
Total labor cost is more than wages. Count hourly and salaried pay, payroll taxes, workers’ comp, benefits, bonuses and overtime. Leaving out taxes and benefits is the most common way owners fool themselves into thinking labor is under control when it is not — the loaded cost of an employee often runs well above their base wage.
A worked example
| Line | Amount |
|---|
| Hourly + salaried wages | $26,000 |
| Payroll taxes, workers’ comp, benefits | $5,500 |
| Total labor cost | $31,500 |
| Total sales for the period | $105,000 |
| Labor cost % (31,500 ÷ 105,000) | 30% |
What a healthy number looks like
As a general industry range, restaurants often target roughly 25-35% of sales. It skews by format: quick-service and counter concepts tend toward the lower end, while full-service and fine dining — with servers, bartenders, bussers and more skilled kitchen labor — commonly run higher, and full-service labor frequently sits in the mid-30s. Rising minimum wages have pushed many markets upward. Treat these as reference ranges; your rent and food cost decide how much labor room you actually have.
Scheduling levers that move the number
- Schedule to a sales forecast. Build shifts around expected covers by daypart, not by habit. Over-staffing a slow Tuesday is pure margin lost.
- Watch sales per labor hour (SPLH). Total sales ÷ hours worked tells you whether each hour on the floor is earning its keep.
- Kill avoidable overtime. Time-and-a-half turns a manageable schedule into an expensive one; catch it before it posts, not after.
- Cross-train. Staff who can flex between stations let you run leaner without leaving gaps.
- Stagger and cut on the fly. Stagger start times and send people home when the rush dies rather than riding a fixed clock.
- Reduce turnover. Constant hiring and training is a hidden labor cost; retention pays for itself.
Split fixed labor from variable labor
Not all labor flexes. Salaried managers and key kitchen staff behave like a fixed cost — they cost the same whether you do 80 covers or 200 — while hourly servers, bussers and line support are variable and scale with volume. Knowing the split matters two ways: your fixed labor is part of the number you must cover before you make a dollar (see break-even), and on a slow day only the variable portion is actually yours to cut. Scheduling software and POS-integrated forecasting help by matching hourly staff to predicted covers by daypart, but the discipline — writing the schedule to the forecast and adjusting in the moment — is what really moves the percentage.
Manage labor beside food, not on its own — a low labor cost bought with terrible service will show up as falling sales next month. Check both together as prime cost, and confirm the whole model clears break-even.
Frequently asked
What is a good labor cost percentage for a restaurant?
As a general industry range, many restaurants aim for roughly 25-35% of sales. Quick-service tends toward the lower end and full-service toward the higher end. The right target depends on your format, local wages and how your rent and food cost split the rest of the dollar.
How do you calculate labor cost percentage?
Divide total labor cost by total sales for the period and multiply by 100. Total labor cost should include wages, payroll taxes, workers' comp, benefits, bonuses and overtime — not just base pay — or the number will understate what staff really costs.
Should labor cost percentage include payroll taxes and benefits?
Yes. The most useful figure is fully loaded labor, which adds payroll taxes, workers' comp and benefits on top of wages. The loaded cost of an employee is often well above their hourly rate, and ignoring it is a common way owners underestimate labor.
What is sales per labor hour?
Sales per labor hour (SPLH) is total sales divided by total hours worked. It shows how productive each scheduled hour is, which makes it more actionable than the percentage alone when you are deciding how to build or trim a schedule.
Why is my labor cost percentage so high on slow days?
Because sales fall faster than a fixed schedule. If you staff a quiet Tuesday like a busy Friday, the same wages divide into far fewer dollars of sales. Scheduling to a demand forecast and sending staff home as the rush ends is the main fix.