How to Calculate Labour Cost in a Restaurant

Why labour cost calculation matters

Labour cost is one of the most important numbers in restaurant management because it connects staffing decisions directly to profitability. A rota may look reasonable on paper, but once wages, employer costs, split shifts, overtime and quiet trading periods are included, the real cost can be much higher than expected.

Calculating labour cost properly helps hospitality managers decide whether a schedule is affordable before the week begins. It also helps identify whether the issue is too many labour hours, weak sales, high hourly rates, unnecessary overtime or poor deployment across the week.

What is restaurant labour cost?

Restaurant labour cost is the total staffing cost required to operate the business during a specific period. Most operators review labour cost daily, weekly or monthly. Weekly tracking is especially useful because it gives managers enough time to adjust rotas and control staffing pressure before month-end results arrive.

Labour cost should include more than basic hourly wages. If you only count wages and ignore employment-related costs, your labour percentage may look healthier than it really is.

What to include in labour cost

• Hourly wages
• Salaried managers
• Employer contributions and payroll-related costs
• Holiday pay
• Overtime
• Agency or temporary staff
• Bonuses, incentives or service-related payments where relevant

The exact items included may depend on your accounting setup, but the important principle is consistency. Use the same method every week so managers can compare labour performance accurately.

Labour cost formula

The basic labour cost formula is straightforward: add all staffing costs for the period you are reviewing.

For example, if a restaurant has £4,200 in base wages, £500 in salaried management allocation, £450 in employer-related costs and £150 in overtime, total labour cost is £5,300 for that period.

How to calculate labour cost percentage

Labour cost percentage shows how much of sales revenue is being used by staffing. This is usually more useful than the labour cost number alone because it puts staffing spend in context with sales.

If your restaurant spends £5,300 on labour and generates £18,000 in weekly sales, the labour cost percentage is 29.4%.

This percentage helps managers compare performance across weeks with different sales levels. A £5,300 labour cost may be healthy during a strong sales week but too high during a quiet week.

Labour cost example

In this example, labour cost is calculated by adding base wages, employer costs and overtime. The result is then divided by weekly sales and multiplied by 100.

How to calculate labour cost from a rota

To calculate labour cost from a rota, multiply each employee’s scheduled hours by their hourly rate, then add employer-related costs if you track them separately.

For example, if a chef works 38 hours at £16 per hour, the base labour cost is £608. If employer costs add 12%, the total cost becomes £681. If multiple team members are scheduled, repeat this calculation for every person and add the totals together.

The easiest way to do this with split shifts is to use the Staff Schedule & Labour Cost Calculator, which calculates hours, cost, labour percentage and sales per labour hour automatically.

What is a good labour cost percentage?

A good labour cost percentage depends on service style, menu complexity, opening hours, pricing and sales volume. Many restaurants work broadly around 25% to 35%, but quick service concepts may operate lower and high-service restaurants may operate higher.

The key is not to chase the lowest possible percentage. A very low labour cost can indicate understaffing, slower service and lost sales. A strong labour target should protect margin while still giving the team enough cover to deliver the experience guests expect.

For deeper benchmarks by restaurant type, read What Is a Good Labour Cost Percentage for a Restaurant?

Sales per labour hour

Sales per labour hour is a useful KPI because it shows whether staffing hours are productive. Labour cost percentage tells you how much revenue goes to staffing. Sales per labour hour shows how much revenue each scheduled hour generates.

If your restaurant generates £18,000 in sales and schedules 520 labour hours, sales per labour hour is £34.62. If that number falls over time, the issue may be weak sales, overstaffing, poor rota structure or quiet dayparts with too much cover.

Common mistakes when calculating labour cost

• Only counting hourly wages and ignoring employer costs
• Mixing weekly labour cost with monthly sales
• Ignoring overtime and agency staff
• Reviewing labour after the rota has already been worked
• Looking at labour cost without reviewing food cost or prime cost
• Using one labour target for every daypart

The biggest mistake is reviewing labour too late. Once the week is over, the cost has already happened. The better approach is to calculate expected labour cost while the rota is being built.

Labour cost and prime cost

Labour cost should not be reviewed alone. Restaurants also need to track prime cost, which combines labour cost and food cost. This shows how much revenue is consumed by the two biggest controllable costs before rent, utilities, marketing and profit.

A restaurant with a healthy labour percentage can still struggle if food cost is too high. Likewise, a restaurant with a strong food cost can lose profitability through poor rota planning. For the full explanation, read the Restaurant Prime Cost Guide.

How to improve labour cost control

For practical ways to reduce labour pressure without damaging service, read How to Reduce Restaurant Staffing Costs Without Hurting Service.