What Is a Good Labour Cost Percentage for a Restaurant?

Understanding restaurant labour cost percentage

Labour cost percentage is one of the most important restaurant KPIs. It shows how much of total sales revenue is spent on staffing costs, including wages, salaries, holiday pay, employer contributions and other payroll-related expenses.

In hospitality operations, labour is usually one of the largest controllable expenses. Even small changes in labour percentage can significantly affect profitability, especially when food cost and overheads are already high.

For example, if weekly labour cost is £7,500 and weekly sales are £25,000, labour cost percentage is 30%.

What is a good labour cost percentage?

A healthy labour cost percentage depends on the type of hospitality business, service style, opening hours and pricing model. However, many restaurants aim to keep labour costs between 25% and 35% of total sales.

These ranges are benchmarks, not fixed rules. A restaurant with higher labour cost can still be healthy if pricing, average spend, food cost and guest experience support the model.

If you want the full formula and worked example, read How to Calculate Labour Cost in a Restaurant.

Why labour cost matters

Restaurants often operate with tight profit margins. If labour costs become too high, profitability quickly disappears even when sales look strong.

Operators need to balance:

• Service quality
• Guest experience
• Staffing levels
• Scheduling efficiency
• Revenue performance
• Team morale and retention

A restaurant running at 38% labour cost while food cost sits at 32% is already at 70% prime cost before a single overhead is paid. At that point, profitability becomes difficult to protect without significant sales volume, strong pricing or operational changes.

That is why labour percentage should be reviewed alongside food cost and prime cost, not in isolation. For a deeper explanation, read the Restaurant Prime Cost Guide.

What should be included in labour cost?

Many restaurants only look at hourly wages when reviewing labour. That can make labour percentage look healthier than it really is.

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

Common labour cost mistakes

Many hospitality businesses struggle with labour costs because schedules are reactive instead of sales-driven.

• Overstaffing quiet shifts
• Poor rota planning
• Ignoring split shifts
• Scheduling without sales forecasts
• Not tracking employer costs
• High overtime usage
• Reviewing labour only at the end of the week

The most expensive mistake is building this week’s rota from last week’s habit. Sales change, booking patterns shift and seasonal demand fluctuates, but many restaurants run the same schedule regardless. That gap between forecast and reality is where labour cost goes wrong.

What happens when labour cost is too low?

Low labour cost is not always a good sign. A restaurant running below 20% may be understaffed, and understaffing has its own cost: slower service, lower guest satisfaction, higher staff turnover and lost sales during busy periods.

The goal is not the lowest possible labour percentage. The goal is the right labour percentage for your concept, sales volume and service model.

How to reduce labour cost without hurting service

Reducing labour cost does not always mean cutting staff. Strong operators focus on productivity, forecasting and smarter scheduling.

• Build schedules around forecasted sales
• Cross-train team members
• Monitor labour daily
• Reduce unnecessary overtime
• Track sales per labour hour
• Review staffing by daypart

For a full playbook, read How to Reduce Restaurant Staffing Costs Without Hurting Service.

Use a labour cost calculator before publishing the rota

Calculating labour percentage manually can become difficult when managing split shifts, multiple staff members and employer contributions. A calculator helps managers estimate labour cost before shifts are worked and before the cost is committed.

Use the free Restaurant Labour Cost Calculator to estimate weekly labour cost, labour percentage, payroll impact and staffing costs before finalising the rota.