8 Ways to Get Control of Your Restaurant Labor Costs Today

Of the five major restaurant costs—equipment, utilities, food, and a POS system— restaurant labor cost is one of the most important. Labor cost is not only one of your largest restaurant costs, but it’s also part of your prime cost,a key performance indicator that helps determine your profitability.

But controlling labor cost is hard. Wages keep climbing, and with margins already thin, labor is usually the toughest controllable cost you have to manage.

Thankfully, it’s not all doom and gloom. This post will help you control restaurant labor cost by showing you:

• Exactly what labor cost entails (hint: it’s not just salaries and wages)
• How to calculate labor cost percentage (and why you should track it)
• 8 ways to control labor cost to remain profitable (some strategies you can implement today for quick wins)

What is restaurant labor cost?

Labor cost includes all labor-related categories:

• Wages and salaries: hourly pay and fixed pay for your team, front and back of house.
• Bonuses: extra pay tied to performance, sales goals, or the holidays.
• Payroll taxes: the employer share you owe, such as FICA and unemployment contributions.
• Health care: your share of employee health coverage and related benefits.
• Vacation and sick days: the paid time off your staff earns and takes.
• Overtime: the higher rate you owe when an employee works past the weekly limit.

How do you calculate restaurant labor cost?

Calculating your total labor costs, then, involves adding the total cost for each of the above cost groups. For example:

• Salaries and wages: $130,000+
• Overtime: $25,000+
• Payroll: $20,000+
• Health care: $25,000+
• Vacation and sick days: $8,000+
• Bonuses: $10,000+
• Total labor cost = 218,000

In isolation, this bottom number doesn’t mean much. But, calculated as a percentage, it becomes far more useful.

How do you calculate labor cost percentage?

The labor cost percentage helps you understand how much money you spend on labor to produce revenue. You can calculate it in several ways:

• Labor cost as a percentage of total sales: Total Labor Cost/Total Sales
• Labor cost as a percentage of operating costs: Total Labor Cost/Total Operating Costs

Below are the steps (with examples) to calculate labor cost as a percentage of total sales. To calculate labor cost as a percentage of operating costs, simply substitute sales with operating costs. Your operating costs will include all your monthly running costs like utilities, rent, and food.

When making these calculations, ensure you use sales and cost data for the same period.

Recommended: Restaurant Utility Costs: 8 Ways To Save Energy, Money, and the Planet

Labor cost as a percentage of total sales in 4 simple steps

Step 1: Collect your total revenue data

Collect your total revenue data from income statements or POS sales reports. For this example, let’s assume your sales were $800,000 for the year.

Step 2: Calculate your total labor costs

Calculate your total labor costs by adding all applicable cost categories like wages, salaries, bonuses, and overtime. For this example, we’ll assume your total labor costs for the year were $240,000.

Step 3: Divide labor cost by revenue

In our example, this gives us 0.3 ($240,000 ÷ $800,000).

Step 4: Multiply the number you get by 100

Finally, multiply the number in Step 3 by 100 to get your percentage. In our example, that works out to 30%

Pro Tip: Track the labor cost percentage overtime to identify upward and downward trends. A continuous upward movement suggests you need to implement cost controls (discussed later).

What percentage should labor cost be in a restaurant?

Most full-service restaurants typically target roughly 25 to 35% of sales, though real numbers often land higher. In its 2025 Restaurant Operations Report, the National Restaurant Association found that salaries, wages, and benefits ran a median of 36.5% of sales for full-service restaurants and 31.7% for limited-service restaurants in 2024. Quick service and fast casual usually run lower than full service, while fine dining often runs higher. Your target depends on your concept, location, and service model.

Treat these as guidelines for comparison, not hard rules. Lining your labor percentage up against restaurants like yours shows how you stack up against the wider industry.

8 ways to control cost using effective restaurant labor allocation

1. Use the right POS system

Not all POS systems are created equal. Find a system that, at a minimum, offers the following basic features:

• Inventory management
• Customer relationship management (CRM)
• Staff management and communication
• Basic marketing features
• Sales reports
• Labor reports
• Employee scheduling (some POS systems integrate with scheduling software to simplify the scheduling process, which can reduce your labor cost by 4%).

Then, ensure you actually use the features to gain the benefits. Two notable features you should focus on to control labor costs are labor reports and employee scheduling.

2. Analyze your labor reports

Review your labor reports against certain times of the day and seasons so you schedule the right number of people and never end up over or understaffed.

For example, a labor report might show you’re overscheduled at 11am, just before lunch service, when you could run with less staff. That looks like a small saving, but over time it adds up to thousands of dollars.

To hit your labor cost targets, read a few reports every week:

• Labor as a percentage of sales: shows whether your spend matches the money coming in.
• Sales per labor hour: shows how much revenue each scheduled hour brings in.
• Hours by role and day-part: shows where you’re heavy or light across breakfast, lunch, and dinner.
• Overtime hours: shows who is creeping past 40 hours before it hits payroll.

Read these against your sales and the fix usually jumps out: trim an opening shift here, add a closer there. Say you spent $2,847 on labor during a $9,200 sales week. That’s 31%, above a 28% target. The reports show you where those hours went, so you know exactly what to change on next week’s schedule.

3. Invest in the right employee management tool

If you’re like some restaurant owners, you:

• Create and manage schedules in Excel
• Struggle to track and manage schedule changes
• Make mistakes when comparing actual vs. scheduled labor
• Spend time checking timesheets, breaks, and overtime

Luckily, the right employee management tool solves all these problems by helping you:

• Create schedules in no time—30 min or less
• Schedule the right amount of employees per shift
• Track and reduce labor costs by analyzing labor reports
• Give employees one app to access their schedules, paystubs, and W-2s
• Manage schedules, labor, and payroll in the same place

7shifts is one such tool. Expect to save anywhere from 1 to 3% on your labor costs when using it. For a more precise savings estimate, use this labor cost savings calculator.

We use [7shifts] as a forecasting tool to really understand, okay, this is how much revenue we expect. That means we should budget this much labor and build our schedules to that much labor and then adjust accordingly…If my budget is X% of revenue for my labor, we’ll look at their schedule with [the managers] the week in advance and be like, you’re already 5% over right? And if it’s on your schedule, you’re not going to hit your target, which means you’re not going to hit your bonus.

—Tom Schmidt, Co-Owner of Salt + Smoke

4. Review your seasonal hiring policy

It’s not uncommon for restaurant owners to hire seasonal staff during peak periods like summertime. But, you may not actually need such a large seasonal workforce.

Review your hiring policy, analyze historical labor reports to spot opportunities to trim seasonal staff, and ask regular employees to take on more shifts. Removing one or two positions can translate into massive savings down the road.

5. Reduce operating hours

Review how busy your restaurant is on certain days and during specific times of the week. If there are quieter times, with revenues barely covering costs, you may choose to reduce your operating hours. The benefit of this approach is that you can concentrate wholeheartedly on your peak periods.

6. Properly train staff

Train your staff, so they feel empowered to do their job correctly and become more efficient. Greater efficiency ensures you can schedule a leaner workforce without jeopardizing service. Training should include:

• Educating employees on how to use your POS properly
• Properly communicating customer service standards to everyone
• Letting new hires shadow top performing staff so they can learn from the best
• Giving all employees access to your employee handbook. This document provides employees with everything they need to know about your restaurant, including HR policies, your restaurant’s mission statement, and crucial systems and processes. Besides acting as the main point of reference for employees, it helps prevent mistakes that can cost you money.

Don’t forget to conduct refresher training with all staff as bad habits can, and do, creep in. Also, ensure you have regular staff meetings and hold performance reviews to identify areas for improvement.

Recommended Reading: How to Write a Powerful Restaurant Mission Statement

7. Boost staff retention

Turnover rates are notoriously high in the restaurant industry, and that costs you money in higher labor costs. Every time someone leaves, you spend time, money, and resources finding and training a replacement. You can avoid a lot of that cost by focusing on retention. So how do you keep the employees you already have? Here are three ways:

1. Rewards: Provide monthly rewards like “employee of the month” or daily rewards for those who make the most sales.
2. Recognition: It’s not always about a financial reward. Sometimes employees just want to feel valued. A simple “thank you,” and even public recognition can boost their confidence and morale.
3. Promotion opportunities: Reward top-performing employees with a promotion to create a culture of growth that encourages other employees to work harder because they see a future with your restaurant. To help identify these top performers, review sale reports from your POS and monitor those who regularly do more than their job description.

8. Analyze and improve processes

Audit your current processes, including time clocking, inventory management, and employee scheduling, to spot ways to run leaner.

For example, instead of clocking staff out by hand, use a system that automates and digitizes the process while collecting useful data on your labor.

Overtime is one of the easiest costs to let slip. Watch for employees approaching 40 hours in a week, and spread shifts across more of your team instead of stacking hours on a few people. Before you publish the schedule, check it for anyone headed into overtime and adjust while you still can. Overtime rules vary: federal law is generally 1.5x pay after 40 hours in a week, but some states have daily overtime rules of their own. Check your state department of labor for the rules that apply to you.

You’ll notice there’s no mention in the above tips of “raising your menu prices” or “reducing wages”—and with good reason. While these methods may benefit you in the short term, they can cause more harm in the long run and have a potential negative impact on profits, staff morale, and customer service.

The bottom line

Labor is a significant restaurant cost that can be difficult to manage. Not only do you have to run a restaurant and keep tabs on other costs, but you have to contend with minimum wage increases.

The good news is you can overcome this challenge and regain control by understanding your labor costs, knowing how to calculate them, tracking your labor cost percentage and, most importantly, implementing the correct strategies such as investing in the right employee scheduling tool.

Are you ready to wrestle your labor costs to the floor?

Labor is one of the biggest costs restaurateurs must deal with to thrive and achieve success. You can start reining your restaurant costs in today with a restaurant labor cost calculator.

Frequently asked questions

What is included in restaurant labor cost?

Restaurant labor cost covers wages and salaries plus overtime, payroll taxes, benefits, and paid time off. It’s every cost of employing your team, from payroll taxes to time off, not only their hourly pay.

What is a good labor cost percentage for a restaurant?

Most restaurants typically target roughly 25 to 35% of sales. Quick service often runs lower, while fine dining often runs higher.

How often should I check my labor cost?

Check it weekly. Monthly is too slow to react, and by then you’ve already blown past your target for weeks.

How do I use payroll data to lower labor costs?

Each week, review labor as a percentage of sales and your hours by day-part. Then adjust the next schedule to match demand, adding hours where sales are strong and trimming them where they’re soft.

How do I control overtime spending?

Watch for employees nearing 40 hours in a week, redistribute shifts across your team, and confirm overtime in the schedule before you publish it. Overtime rules vary by location, so check your state department of labor for the rules that apply to you.