Calculating Labor Cost Percentage

Labor costs are the highest cost a restaurant incurs. This makes labor cost percentage an important metric to calculate and track. With total labor costs comprising 30-35% of the restaurant revenue, calculating them accurately is critical in ensuring you are not making unnecessary losses. This article will explain this concept in more details;

  • What are restaurant labor costs?
  • How to calculate restaurant labor cost percentage?
  • What is the ideal restaurant labor cost percentage?
  • Ways of lowering labor costs in a restaurant. 

What are restaurant labor costs?

Restaurant labor costs are the total dollar amount that your business spends on labor. This includes the pay made to both hourly wages and salaried workers, employee benefits, and taxes. This amount has a direct impact on prime cost, which is a key metric used in examining the efficiency of the restaurant. Other expenses that form part of labor costs include health care, payroll taxes, overtime, bonuses, sick and vacation days.

Restaurant Labor Cost

How do you calculate restaurant labor cost percentage?

Anything in a restaurant classified as labor-related is considered when calculating restaurant labor cost percentage. Although there are several ways of calculating labor costs percentage, an effective approach is basing the calculation on hours worked. You can easily determine your restaurant labor costs after a shift. You can then use this data to make future predictions and schedule your staff accordingly. You can calculate labor costs percentage using the following methods:

Percentage of Sales

One of the approaches used to calculate restaurant labor cost percentage is basing it on the restaurant’s total sales: