How to Reduce Labor Costs in a Restaurant: 10 Ways That Work

To reduce labor costs in a restaurant, schedule shifts based on a sales forecast, set a weekly labor budget, stop overtime before it happens, and keep the staff you've already trained.

Cutting hours across the board rarely lasts: service slows, and your best people leave.

Below you'll find what counts as labor cost, the labor percentages profitable restaurants run, a weekly labor budget formula, and 10 ways to control labor cost without hurting service.

What counts as restaurant labor cost?

Labor is one of the largest restaurant operating costs, and it covers more than hourly pay:

• wages and salaries for front- and back-of-house staff
• overtime premiums
• employer payroll taxes, including 6.2% for Social Security and 1.45% for Medicare (IRS)
• health insurance, retirement contributions, and paid time off
• workers' compensation insurance and bonuses

Salaried managers and chefs are a fixed cost. Hourly shifts are the variable part, and you control the schedule.

What labor cost percentage should a restaurant aim for?

Labor cost percentage is total labor cost divided by total sales, multiplied by 100, the same logic as calculating food cost percentage. Our guide to restaurant labor cost percentage covers both calculation methods.

The latest benchmark comes from the National Restaurant Association's 2025 Restaurant Operations Data Abstract, based on 2024 data from more than 900 operators:

Profitable full-service operators ran labor 8.7 percentage points lower than those that lost money. Aim for the "pre-tax profit" column, not the overall median.

How to build a weekly labor budget

Set the budget before you write the schedule:

Weekly labor budget = forecasted weekly sales × target labor % − salaried labor

Example for a limited-service restaurant:

1. Forecasted sales for next week: $25,000.
2. Target labor percentage: 30%, the median for profitable limited-service restaurants → $7,500.
3. Minus salaried managers and chefs: $2,000 → $5,500 for hourly staff.
4. At an average fully loaded cost of $20 per hour, that's 275 hours to schedule.

Spread those hours by daypart, heaviest where sales are highest. If the forecast drops mid-week, cut the next shifts, not next month's.

10 ways to control and reduce labor costs in a restaurant

The first three need no new hires, tools, or budget, so start there.

1. Schedule to a sales forecast, not last week's roster

Copying and pasting last week's schedule is the fastest way to overstaff. Build each schedule from your POS sales history by day and daypart, then adjust for local events, holidays, weather, and promotions.

Staff peaks tightly and trim the shoulders: the hour before lunch, the mid-afternoon lull, and the last hour before close.

Still scheduling on paper? Start with this schedule template, then move to restaurant scheduling software that builds shifts from the forecast.

2. Track labor weekly: labor %, sales per labor hour, and scheduled vs. actual hours

Monthly reviews come too late; by then the overspend is on payroll. Every week, check:

• Labor cost % against the target in your weekly labor budget.
• Sales per labor hour (SPLH): total sales ÷ labor hours worked. The daypart with the lowest SPLH is overstaffed or not worth staying open.
• Scheduled vs. actual hours: gaps point to early clock-ins, late clock-outs, and unapproved shift swaps.

3. Stop overtime before it's worked

Under federal law, covered non-exempt employees must get at least 1.5 times their regular rate for every hour over 40 in a workweek (U.S. Department of Labor), and some states have stricter rules, so check your state's labor laws. At $20 an hour, each overtime hour costs $30 and brings in nothing extra.

Before you publish the schedule, find anyone heading past 40 hours and move those shifts to part-timers. Require manager approval for any overtime that's left.

4. Cross-train staff to cover slow shifts

A host who can bus tables and run food, or a line cook who can cover prep, lets you run one fewer person on slow shifts and fill call-outs without overtime.

Start with the stations that sit idle most, train during quiet hours, and add a small raise for each station an employee masters so cross-training doesn't feel like unpaid extra work.

5. Mix full-time, part-time, and on-call staff

Keep full-time employees on your steadiest shifts and fill peaks with part-time staff. A short on-call list of trained people who want extra hours covers sick days and seasonal spikes without overtime.

Before hiring seasonal workers, check last year's labor reports: your regular team can often absorb the peak with a few added shifts.

6. Cut turnover, the labor cost you don't see on the schedule

Restaurants lose staff faster than almost any other industry: in 2025, accommodation and food services averaged a 5.5% monthly separation rate, versus 3.3% across all U.S. jobs (U.S. Bureau of Labor Statistics).

Every departure means paying to recruit and onboard someone, plus slower service while they learn.

What keeps people: schedules posted early and kept, fair pay with a clear path to a raise, structured onboarding, and recognition for top performers. Short exit interviews tell you why people leave.

7. Tie bonuses to labor and sales targets

Instead of cutting hours across the board, reward results. Give managers a bonus for hitting the weekly labor target while holding sales and guest ratings steady, and give servers incentives for check average or upselling.

A fixed wage plus a performance component costs more only when the restaurant earns more.

8. Simplify prep and the menu

Every dish has a labor cost as well as a food cost. Compare prep time with sales for each item: slow sellers with long prep are the first to cut or rework, and a menu engineering review makes that call systematic.

Batch-prep sauces and bases, and buy pre-cut produce where quality allows. Scratch prep lowers food cost but raises labor, so judge each change by its effect on your prime cost, and see how to reduce food costs for the food side.

9. Let guests and software handle low-value tasks

Taking phone orders, keying tickets, and walking checks back and forth don't need a person on payroll.

Online ordering moves order-taking to the guest. QR code table ordering and pay-at-the-table let guests order and pay without waiting, so each server covers more tables.

A kitchen display system sends tickets straight to the right station, with no runner and no misread handwriting. The goal isn't fewer people on the floor; it's fewer paid hours on tasks a guest or a screen can do.

10. Rethink delivery labor

In-house drivers get paid whether orders come in or not. Two fixes work:

• Batch routes: group nearby orders into one trip so each driver delivers more per hour. With UpMenu's delivery module and a driver app, you assign and track deliveries from a single app and optimize routes.
• Switch to on-demand couriers: for quiet hours and overflow, book third-party couriers per order instead of keeping extra drivers on the clock. Delivery becomes a per-order cost instead of a fixed wage.