A step-by-step way to measure what your team costs as a share of sales, and practical levers to keep it on target without hurting service.
The basic calculation is simple:
For example (fictional numbers), if a restaurant had $40,000 in sales in a week and spent $12,000 on labor, its labor cost percentage was 30%. The number is only meaningful when you calculate it the same way every time, so decide what goes into “labor cost” once and stick to it. Our general guide to calculating labor cost covers the building blocks.
Tips are a special case. Tips received by employees generally belong to the employees and are not your labor cost, but if you pay tipped employees a cash wage and use a tip credit, the cash wage is a cost. Tip rules are detailed and vary by state; see our article on calculating hours worked for the time side, and check with a payroll professional on tips.
You will see many general figures quoted online, but there is no single correct number. A full-service restaurant with table service and a scratch kitchen needs more labor per dollar of sales than a counter-service concept with a limited menu. Rent, menu prices, local minimum wages and your service model all change the picture.
A more useful approach is to set your own target based on your budget: start with what the business needs to earn, subtract food, rent and other costs, and see what is left for labor. Then compare each week with that target and with the same week last year. The trend tells you more than any industry average.
If you only look at labor cost at month end, it is too late to change anything. A weekly or even daily view lets managers act while it still matters. A simple weekly routine:
Most labor cost is decided when the schedule is written. Build the schedule from forecast covers or sales by daypart, not from last week’s schedule. Staff the peaks fully and keep the quiet hours lean.
| Daypart | Forecast sales | Servers | Cooks |
|---|---|---|---|
| Lunch 11–2 | $3,200 | 4 | 3 |
| Afternoon 2–5 | $700 | 1 | 1 |
| Dinner 5–9 | $5,400 | 6 | 4 |
| Late 9–11 | $900 | 2 | 1 |
Staggered start and end times often save more than cutting whole shifts. Our guide on how to create an employee schedule walks through the process, and the restaurant page shows how EZTime supports it.
Cutting labor too far shows up quickly in slow tickets, poor reviews and burned-out staff, which hurts sales and makes the percentage worse. Never reduce cost by having people work off the clock or by skipping required breaks; that creates legal risk and back pay. Use labor percentage alongside other measures, such as sales per labor hour and guest feedback, to see the full picture.
Also be careful when comparing periods. A week with a holiday, a large private event or a new menu launch will look different from a normal week. Note these events next to your weekly numbers so the trend stays meaningful and nobody overreacts to a single unusual week.
EZTime gives restaurant teams a time clock on a shared tablet, the mobile app or NFC tags, with schedules, shift swaps, overtime and break alerts in the same place. Managers see hours as they happen and export approved hours for payroll. You still enter sales from your POS to calculate the percentage, but the labor side is ready and accurate.
Divide total labor cost by total sales for the same period and multiply by 100. Include wages, overtime, payroll taxes and benefits.
Many restaurants include them, others track them separately. Either is fine if you stay consistent and compare like with like.
Tips paid by guests generally belong to employees and are not a labor expense, but the cash wage you pay tipped staff is. Check state tip rules with a payroll professional.
Weekly at a minimum. Daily checks help managers adjust schedules while the week is still running.
It depends on your concept, prices and location. Set a target from your own budget and track the trend against it.
EZTime tags hours by job, client and role and shows real-time labor costing on the schedule, so estimates can be checked against actual hours.