What one hour of restaurant labor really costs

An hour costs you more than the wage on the schedule. Add the employer's Social Security and Medicare, the unemployment taxes, workers' compensation, and any paid leave, insurance or retirement pay you offer, then divide by the hours people actually worked. In June 2026 the U.S. average for restaurants and hotels was about $1.24 for every $1.00 of wages, tips not counted, but your own rates decide yours. This post gives you the method, a worked hour and a worked overtime hour to repeat with your numbers, and what changes for tipped staff.

It's about dollars per hour, not percent of sales. For what share of sales labor should be, and the targets for each type of restaurant, see the labor cost guide.

The wage on the schedule is where the cost starts

The national picture comes from the Bureau of Labor Statistics. Its Employer Costs for Employee Compensation release says total employer costs for private industry averaged $46.89 per hour worked in June 2026, published September 9, 2026. The release's Table 4 splits that by industry.

In accommodation and food services, the $3.85 of benefits is what sits on top of $16.18 of wages: about $1.24 of total cost for each $1.00 of wages. The table breaks the $3.85 into legally required benefits ($1.82), insurance ($0.86), paid leave ($0.63), supplemental pay ($0.28) and retirement and savings ($0.25). The lines are rounded, so they don't add to the cent. BLS counts Social Security, Medicare, federal and state unemployment insurance and workers' compensation as legally required benefits.

Four things to know before you use that number:

• It is per hour worked. That is how BLS states the unit, so the cost of paid leave is spread over the hours people were on the job.
• It is an average of every job in the industry. The group is accommodation and food services, so it includes hotels, managers, cooks and dishwashers alike. It isn't the cost of one server or one cook.
• Its wages leave out tips. BLS lists tips, which come from guests, among the payments not counted in wages and salaries.
• The overtime premium sits in benefits, not wages. BLS counts premium pay for overtime as supplemental pay, so the wage figure is closer to straight-time pay.

What sits on top of the wage

Some of these costs come from federal law, some from your state, some from your insurer and some are your choice. That matters, because only some of them grow with every extra hour.

• Social Security and Medicare (federal law). IRS Topic 751 puts the employer's share at 6.2% for Social Security and 1.45% for Medicare, 7.65% together. The Social Security part applies up to a wage base, $184,500 of a person's wages in 2026, which an hourly cook is far from reaching.
• Federal unemployment tax (federal law). IRS Topic 759 says the rate is 6.0% on the first $7,000 you pay each employee in a year. With the maximum credit for state unemployment taxes paid, the rate is 0.6%, which is $42 per person per year. The credit is smaller in a state that has borrowed from the federal government and not repaid. The IRS page also says most employers pay both the federal and the state tax.
• State unemployment insurance (your state). Your rate comes from your state, not the IRS. Ask your state's unemployment agency for your rate and the wages it applies to, and don't borrow a number from another state.
• Workers' compensation (state law and your insurer). Each state has its own program and official: the Labor Department's list of state workers' compensation officials links each state's page. The rate on your own policy is your number; ask your carrier how it is quoted and whether overtime pay counts in full.
• Insurance, retirement and paid leave (your choice, and sometimes your state's or city's). What you offer is yours to price. If your state or city requires paid leave, your state labor office can say how it works.

Not in that list: meals for staff, uniforms, training time and payroll service fees. Add them if you want a fuller number.

One hour, worked out

Work it over a year, so the costs that are charged per person, not per hour, get spread across the hours they cover.

Here is an example, made up so you can follow the sums. Harbor Street Grill, an example full-service restaurant, has a line cook at $18.00 an hour for 40 hours a week. That is 2,080 paid hours a year, 40 of them paid leave, so 2,040 hours worked. The workers' compensation and state unemployment rates, and the insurance, are round numbers for the example, not typical for anyone. Use the ones on your own notices and policies.

The cook's $18.00 hour costs $21.60 per hour worked, 1.20 times the wage on the schedule. The wage line is $18.35 because the year's wages include 40 hours of paid leave, divided over 2,040 hours of work. The BLS industry average is about 1.24, built a different way and from every job in the industry. Neither is a target. Your own figure is the one to know.

An overtime hour

The federal rule, in the Labor Department's overtime fact sheet: covered employees, unless specifically exempted, get pay at “not less than time and one-half their regular rates of pay” for hours over 40 in a workweek. A workweek is a fixed, repeating period of 168 hours. It can start on any day, and the sheet says “Averaging of hours over two or more weeks is not permitted.” A 50-hour week followed by a 30-hour week is 10 hours of overtime, not zero.

Say Harbor Street Grill's cook works 50 hours one week. The last 10 are overtime at 1.5 × $18.00 = $27.00. Which of the add-ons grow with those 10 hours?

The same logic works with your numbers: the overtime wage, plus the costs that follow wages, and nothing for the costs that are fixed per person.

More hours, or one more person

Because some costs follow wages and others are charged per person, the same extra hours can cost differently depending on who works them. Say Harbor Street Grill needs 10 more cook hours a week. Either the cook works them as overtime, or a new part-timer is hired at the same $18.00.

The part-timer's unemployment taxes are $42 of federal tax and $187.20 of the example state tax, spread over 52 weeks, because a new person starts their own wage bases. The overtime hours add none, because the cook already passed them.

What the table leaves out matters as much: the time to hire and train, whether anyone is available, and whether the cook wants the hours. It also leaves out any paid leave or insurance you would offer a new hire, which are fixed per person and change the answer if they apply. The arithmetic doesn't say which choice is right. It says to compare costs hour by hour, not wage by wage.

The same goes for a split shift, a lunch half and a dinner half. The costs that follow wages follow the dollars paid, so the cost per hour is the same. What can change is the rules: some cities and states require pay when a shift is cut short or changed late, and our post on slow shifts lists the official pages we read. For choosing which hours to cut, see the sales per labor hour guide.

Tipped staff

Don't use the BLS average for a server or bartender. Its wages leave out tips, and a tipped worker's cash wage can be far below the average.

• The cash wage is set by law. The Labor Department's fact sheet on tipped employees says the federal minimum cash wage is $2.13 an hour and the maximum tip credit is $5.12, against a $7.25 minimum. It also says some states require a higher cash wage and some don't allow a tip credit. Where state law differs, the sheet says the rule that protects the employee more applies.
• Overtime follows the full minimum wage. When an employer takes a tip credit, the sheet says overtime is calculated on the full minimum wage, not on the cash wage.
• Reported tips carry employer tax. IRS Topic 761 treats the tips an employee reports as subject to Social Security and Medicare, and says the employer pays its portion. So the employer's 7.65% applies to cash wages and reported tips together.

For a tipped hour, use the same method: the cash wage, the employer's tax on cash wages and reported tips, and the rest of the list above. Each state's cash wage is in the tipped minimum wage guide. Whether a federal credit applies to the employer's tax on tips is a question for your accountant, and our FICA tip credit calculator shows whether it is worth that call.

This week

1. 01From your payroll report, get last year's wages and the employer taxes line, and from your time clock the hours actually worked, for one job or one group of people.
2. 02Pull your insurance invoices, your workers' comp policy and your state unemployment notice, so the rates in your table are yours.
3. 03Fill in the table above with your numbers: wages, employer taxes, insurance and other benefits, divided by hours worked. That is your cost per hour.
4. 04Work an overtime hour the same way: 1.5 times the regular wage, plus only the costs that follow wages.
5. 05Look up your state's overtime rules with your state labor office, including whether overtime counts by the day.
6. 06Put your payroll taxes and benefits into the labor cost calculator to see them as a share of sales.