Restaurant labor cost percentage: what's good + formula

A restaurant's labor cost percentage is what it costs to staff the restaurant, wages plus payroll taxes and benefits, as a share of sales. What's good depends on how you serve: the targets RestaurantDoctorAI uses run from 26–31% of sales at quick service to 34–38% at fine dining. When yours runs high, look at the schedule before you look at pay rates.

How to calculate labor cost percentage

Labor cost percentage compares what it cost to staff the restaurant with what it sold in the same period. Work it out weekly if you can. A monthly number arrives after the shifts that caused it are over.

Work out yours here: your net sales and payroll for a week or a month, against the range for your type of restaurant.

What counts as labor cost

Everything it costs you to have people on the payroll. Leave something out and the number looks better than it is, which is the most common reason two owners' figures don't compare.

For a week, count a 52nd of each year's salary; for a month, a 12th. Tips come from guests, not from your sales, so they stay out of both. Tip rules vary by state and city, so check yours.

Labor cost percentage by restaurant type

How much of your sales should go to labor depends on how you serve guests. A counter needs fewer paid hours per dollar of sales than a dining room with servers, runners and bussers. The quick answer at the top of this page has the target for each type.

For comparison, the National Restaurant Association's figures for 2024 put the median labor cost of restaurants that made a profit at 30.0% of sales for limited service, meaning counter service, and 34.2% for full service. Across all full-service restaurants, profitable or not, the median was 36.5%.

For bars and fine dining you'll find different ranges in different places, and no independent survey splits them out. Treat any one range, ours included, as a guide, and watch your own trend week to week.

All of one type's targets, with an example month: full service, quick service and fast casual, bars, cafés, or every type side by side.

Labor is one half of restaurant prime cost. Cost of goods sold is the other. Each can sit inside its own range while the two together reach or pass your prime cost ceiling, so check them side by side. If food is the half running high, see how to calculate and fix food cost percentage.

Payroll percentage vs labor cost percentage

Restaurant payroll percentage is usually the same number under another name: payroll, with the employer's taxes and benefits, as a share of sales. Before you compare yours with a figure you've read, check what it counts. Some leave out payroll taxes and benefits, some leave out managers' salaries, and either makes labor look lower than it is.

Outside the US the same number goes by other names. In the UK it's usually labour cost, and employer's National Insurance and pension count in it; in Ireland, employer's PRSI. In Australia owners call it wage percentage, or wages as a percentage of sales, and super counts in it. In New Zealand, KiwiSaver and ACC levies do.

Sales per labor hour (SPLH): your cut line

SPLH means sales per labor hour. Labor cost percentage tells you how last week went; sales per labor hour tells you how this hour is going, while a manager can still act on it. The short version is below; the sales per labor hour guide has the rest.

That figure becomes useful next to a cut line: the sales per labor hour below which labor runs over your ceiling. You set the line from your own wages and your format's target, written as a decimal.

When sales per labor hour fall below the line, labor is running above your ceiling. That's the moment to make the first cut.

Work out your own cut line from last week's payroll and sales with the free labor cost calculator. It also counts benefits and salaried pay, which the formula above leaves out.

Who goes home first depends on the format. In fine dining, cut runners, bussers or a prep cook before servers or captains. On a slow bar night, cut the barback and a bartender well before last call. At quick service and fast casual, stagger start times so extra staff arrive with the rush.

Why labor cost runs high

Before you look at pay rates, look at hours. Each of these patterns adds paid hours, or pricier ones, without adding sales.

• Fixed shifts that don't flex with traffic. Everyone works their scheduled shift, busy or not. An idle hour costs the same as a packed one.
• Overtime above 8% of hours. Overtime hours usually cost more than regular ones. RestaurantDoctorAI treats that share as a scheduling signal. The usual causes are doubles, covered call-outs, and clocking in early and out late.
• Start times ahead of the rush. Staff who arrive an hour before guests, or stay long after tickets slow, are paid for idle time.
• Schedules written from habit. Without a cover forecast, it's easy to staff every Friday for your best-ever Friday.

To find your overtime share, divide overtime hours by total hours worked in the same pay period. If your team worked 600 hours over two weeks and 60 were overtime, that's 10%, above the 8% line.

A low number can hide a problem too. When the owner covers a station, labor can look fine on paper while nobody watches costs, the schedule or the guest experience.

How to reduce labor cost in a restaurant

None of these steps needs new software or new hires. Steps 1, 2, 3 and 5 happen when you write next week's schedule.

1. 01Forecast covers for each day next week: average the same weekday over the last four weeks, then adjust for reservations, local events, holidays, paydays and the weather. Staff each shift to that forecast.
2. 02Pull four weeks of sales and staff hours by hour from your POS and time clock. Where staff outnumber the work at the start of a shift, move one or two start times 30 minutes later.
3. 03Set your cut line with the formula above. On every schedule, write the cut order: who goes home first, second and third, and who closes.
4. 04During the shift, the manager checks sales per labor hour on the hour and makes the first cut as soon as it drops below the line.
5. 05Total each person's hours before posting the schedule. Keep full-timers below the point where overtime starts, with room for a late close: where that's 40 hours a week, schedule 38 or fewer. Offer extra shifts to part-timers first.
6. 06Allow no clocking in more than five minutes early without a manager's OK, and check the time report every morning. Train a second person on each station so a call-out doesn't become a double.
7. 07If you cover a station yourself, train your most reliable team member on it over two slow shifts. Hand it over with a written checklist, or the work drifts back to you. Then block two hours off the floor every week for prime cost, next week's schedule and orders.

Trim idle hours, not the side work that keeps the place clean and stocked. Redo the hour-by-hour review from step 2 every month.

The sign it's working: weekly labor cost moves toward your range without longer ticket times or more complaints.

Common questions

What percentage should labor cost be in a restaurant?

It depends on your format. The targets RestaurantDoctorAI uses are 26–31% of sales for quick service, 27–32% for fast casual, 30–35% for full service, 34–38% for fine dining and 25–32% for a bar or lounge, with payroll taxes and benefits counted in. Check it alongside food cost, since the two add up to prime cost.

Is 25% labor cost high for a restaurant?

No, it's low. It sits at the bottom of the bar and lounge range (25–32%) and under every other range RestaurantDoctorAI uses, which start at 26% for quick service. It's also under the National Restaurant Association's 2024 medians: 30.0% for profitable counter-service restaurants and 34.2% for profitable full-service ones. Before you count on it, check that it includes payroll taxes, benefits, managers' salaries and any hours you work yourself unpaid.

Is 20% labor cost good?

It's below every range RestaurantDoctorAI uses and well below the medians above. When labor reads 20%, something is often left out of the count, such as payroll taxes, benefits, salaried managers or your own hours, or the floor is short-staffed. If the number holds up with everything counted, watch wait times and reviews to make sure guests aren't paying for it.

What is the 30/30/30 rule for restaurants?

A rule of thumb: about 30% of sales to food and drink, 30% to labor, 30% to everything else, and 10% left as profit. It has no published source, and labor alone often runs above 30% at full service. How the rule compares with real restaurants.

Is payroll percentage the same as labor cost percentage?

Usually, yes: it's the same share of sales under another name. Check what a payroll figure counts before you compare it with yours, since some leave out payroll taxes, benefits or managers' salaries.

What does SPLH mean?

Sales per labor hour: your sales for a period divided by the hours your staff worked in it. Compare it with your cut line, the point below which labor runs over your ceiling. See sales per labor hour for the full guide.

What is a good sales per labor hour?

It depends on your wages and your format's ceiling. Divide your average hourly labor cost, wages plus payroll taxes, by your ceiling as a decimal. At $17.50 an hour and a 35% ceiling, the line is $50. Below it, labor for that hour is running above 35% of sales. Benefits and salaried pay come on top, so aim a little above the line.

Does labor cost include my own pay?

If you're on payroll, yes, your pay is already in it. If you work in the restaurant without a salary, add what you'd pay someone to do your hours, plus the payroll taxes on it. Otherwise a restaurant that depends on unpaid owner hours looks healthier than it is.

How much overtime is too much in a restaurant?

RestaurantDoctorAI uses 8% of total hours as the line. Above it, overtime usually signals gaps in the schedule rather than a real need for more staff. When overtime starts, and whether it counts by the day or the week, depends on where you operate. Check your state and city rules.