Restaurant Labor Cost Percentage: Formula & Benchmarks (2026)
Restaurant labor cost is everything you pay to employ your team: wages, salaries, overtime, employer payroll taxes, benefits, and workers' compensation.
To find your labor cost percentage, divide total labor cost by net sales for the same period and multiply by 100. In 2024, profitable full-service restaurants spent a median 34.2% of sales on labor, and profitable limited-service restaurants 30.0%.
Below, you'll learn what to count, how to calculate the percentage with a fully loaded weekly example, which benchmarks to use, and where to look first when your number runs high.
What is restaurant labor cost?
Restaurant labor cost is the total a restaurant spends to employ its front-of-house, back-of-house, and management staff over a period. Together with cost of goods sold, it makes up prime cost, and in full-service restaurants it's the largest single operating expense.
Wages are only part of it: in accommodation and food services, benefits made up 19.2% of employer compensation costs per hour worked in June 2026.
Include in labor cost | Leave out |
|---|---|
Hourly wages and salaries, including the cash wage you pay tipped staff | Tips guests pay to employees |
Overtime premiums, bonuses, and paid time off | Sales tax collected from guests |
Employer Social Security (6.2%) and Medicare (1.45%) on wages and reported tips | Recruiting, uniform, and training costs, unless you count them every period |
Federal and state unemployment taxes, workers' compensation insurance | |
Health insurance, retirement contributions, and tip makeup when tips don't reach minimum wage |
Salaries for managers and chefs are a fixed cost; hourly shifts are the variable part you control through the schedule.
Opening a new restaurant? Budget pre-opening payroll for hiring and training as part of your restaurant's opening costs.
How to calculate restaurant labor cost percentage
Labor cost percentage shows how many cents of every sales dollar go to labor.
Calculate it in three steps:
- Add up total labor cost for the period, using every item in the "include" column above. Payroll reports and the labor lines of your restaurant P&L have the figures.
- Take net sales for the same period: sales after discounts, comps, and refunds, minus sales tax and guest tips. UpMenu POS tracks sales in real time.
- Divide labor by net sales and multiply by 100.
Run it weekly. A monthly number arrives after payroll has closed, when you can no longer change the schedule behind it.
Example: weekly labor cost percentage for a full-service restaurant
Here is one week at a 70-seat full-service restaurant with $26,000 in net sales. Servers earn the federal tipped cash wage of $2.13 an hour and reported $4,000 in tips; other figures are illustrative.
Cost line | Calculation | Weekly cost |
|---|---|---|
Servers (6) | 180 hours × $2.13 | $383.40 |
Line cooks (4) | 160 hours × $18.00 | $2,880.00 |
Prep cooks and dishwashers (2) | 70 hours × $15.00 | $1,050.00 |
Hosts and bussers (3) | 75 hours × $13.00 | $975.00 |
Overtime (1 line cook, hours 41–46) | 6 hours × $27.00 (1.5 × $18.00) | $162.00 |
General manager | $65,000 ÷ 52 weeks | $1,250.00 |
Kitchen manager | $55,000 ÷ 52 weeks | $1,057.69 |
Wages and salaries | $7,758.09 | |
Employer Social Security and Medicare on wages | $7,758.09 × 7.65% | $593.49 |
Employer Social Security and Medicare on reported tips | $4,000.00 × 7.65% | $306.00 |
Health insurance contributions | $600.00 | |
Unemployment taxes and workers' compensation | $250.00 | |
Total labor cost | $9,507.58 |
Total labor cost percentage = ($9,507.58 ÷ $26,000) × 100 = 36.6%.
Count wages and salaries only, and you get 29.8%, which looks safe. Employer taxes and benefits add almost 7 points.
At 36.6%, this restaurant sits at the full-service median of 36.5% but 2.4 points above profitable operators. Reaching 34.2% at the same sales means cutting about $616 a week from labor, or roughly $32,000 a year.
Labor cost as a percentage of total operating costs
Some owners also track labor as a share of total operating costs, labor included.
If the example restaurant spent $24,800 that week on food, labor, rent, utilities, marketing, and other restaurant operating costs, labor made up ($9,507.58 ÷ $24,800) × 100 = 38.3% of its costs.
This view shows how your cost structure is built. Industry benchmarks, though, are reported as a share of sales, so compare yourself using only the first method, and keep the same formula week after week.
What is a good labor cost percentage for a restaurant?
A good labor cost percentage is what profitable restaurants like yours spend: in 2024, the median was 34.2% of sales for full-service restaurants and 30.0% for limited-service restaurants. Restaurants that lost money spent far more.
Restaurant type | Profitable restaurants | All restaurants | Restaurants with a loss | Average in 2010, 2013 and 2016 reports |
|---|---|---|---|---|
Full-service | 34.2% | 36.5% | 42.9% | ~33% |
Limited-service | 30.0% | 31.7% | 34.1% | ~28% |
Median salaries and wages, including benefits, as a share of sales in 2024. Sources: NRA, 2025 Restaurant Operations Data Abstract; historical averages: NRA.
Two factors move your own target:
- Service model: table service takes more staff per guest, so full-service runs higher in every column, and fine dining usually sits at the top of that range.
- Location: state and local minimum wages, including tipped cash wages above the federal $2.13, raise your floor.
The old "keep labor under 30%" rule now describes profitable limited-service restaurants, not the industry. Read labor next to your food cost percentage: a lower food cost leaves more room for labor, and vice versa.
Labor cost percentage too high? Where to look first
Before cutting hours, find out which part of the number moved:
- Sales dropped, labor didn't: compare scheduled hours with sales by daypart and trim the slowest shift shoulders first.
- Overtime crept in: hours over 40 in a workweek cost at least 1.5 times the regular rate. Spot anyone close to 40 before you publish the schedule.
- Staff spend time taking orders: QR code ordering at the table and online ordering let guests enter their own orders, so servers spend that time on service.
Restaurant scheduling software that builds shifts from a sales forecast handles both.
For the full playbook, see how to reduce labor costs in a restaurant and track labor alongside other restaurant KPIs to review weekly, such as sales per labor hour.
About the author
Co-Founder
Co-Founder of UpMenu, leading the UpMenu Partner Program. Writes about partner programs, restaurant finance, franchise & multi-location operations, and growth strategy. Serial entrepreneur with 30+ years of building and scaling businesses across CEE and Switzerland.