Effective Tips for Determining Your Restaurant Staff Cost Percentage 

Staffing is one of the most important (and expensive) parts of running a restaurant. That’s why understanding your restaurant staff cost percentage is key to staying profitable.

From calculations to cost-cutting strategies, you’ll learn how to manage your numbers and keep your operation running smoothly in this article. 

WHAT IS RESTAURANT STAFF COST PERCENTAGE? 

Labor is one of the biggest expenses in running a restaurant. Knowing how much of your total revenue goes to staffing helps you make smarter financial decisions. 

DEFINING LABOR COST PERCENTAGE 

Your labor cost percentage shows how much of your restaurant’s sales go toward paying your staff. It’s one of the most important numbers for running a profitable operation. 

Labor costs include both fixed costs (like salaried managers) and variable costs (like hourly staff who work different shifts). Keeping this number under control helps maintain profitability without sacrificing service quality. When managed well, you’ll run a leaner, more sustainable business. 

THE ROLE OF LABOR COSTS IN RESTAURANT PROFITABILITY 

Labor costs don’t just affect payroll—they impact your overall profit. When wages go up without a plan, your margins shrink fast. 

Labor is often the largest component of your operating costs. Striking the right balance matters for the following reasons: 

• Overstaffing eats into profits. 
• Understaffing hurts service and sales. 
• Sudden spikes in restaurant labor costs can make or break your monthly performance. 

Controlling labor is key to staying financially healthy. 

HOW TO CALCULATE RESTAURANT STAFF COST PERCENTAGE 

Once you know how labor impacts your profit, the next step is to calculate it clearly and consistently. This percentage gives you a snapshot of how efficiently you're managing labor costs. 

FORMULA FOR CALCULATING LABOR COST PERCENTAGE 

The formula to calculate labor cost percentage is simple: 

(Total Labor Costs ÷ Total Sales) x 100 = Labor Cost Percentage 

For example, if your total labor costs add up to $12,000 and your sales are $40,000, your labor cost percentage is 30%. Use this formula to stay on top of changes in costs and spot trends early. 

UNDERSTANDING TOTAL LABOR COSTS 

Before you calculate your labor percentage, make sure you’re including all the right expenses, not just wages. Total labor costs should cover: 

• Hourly wages and salaries. 
• Overtime pay. 
• Payroll taxes. 
• Employee benefits like health insurance and paid time off. 
• Training and onboarding costs. 
• Other labor-related costs, like uniforms or staff meals. 

Getting a full picture of labor costs helps you avoid surprises. It also gives you more accurate numbers when budgeting or adjusting your staffing. 

THE IMPACT OF RISING LABOR COSTS 

Labor costs are constantly rising, and minimum wage increases can add thousands to your payroll each year. 

Additionally, shortages in qualified labor make it harder to hire without offering higher pay or incentives. You’ll need to factor in overtime rules that require extra pay. Staff turnover further adds to the burden through increased training and onboarding costs. If you don’t plan ahead, rising labor expenses can catch you off guard and cut into your margins. 

WHAT IS A GOOD LABOR COST PERCENTAGE FOR RESTAURANTS? 

Labor cost goals aren’t one-size-fits-all. They vary based on your restaurant’s size, business model, and location. Understanding the typical range makes it easier to benchmark your own costs. 

INDUSTRY BENCHMARKS FOR LABOR COSTS 

Restaurant industry benchmarks give you a helpful range to aim for. Here’s what most restaurants target: 

• Quick-Service Restaurants (QSRs): 25%–30%. 
• Casual Dining: 30%–35%. 
• Fine Dining: 35%–40% 

If you run a delivery-heavy or high-volume operation, you might see different patterns. Location also matters as urban areas often have higher wages. Use these benchmarks as a starting point, then adjust based on your actual costs and business goals. 

COMPARING LABOR COSTS TO OTHER EXPENSES 

Labor and food costs are the two biggest line items in your budget. Together, they make up your prime cost. This is the total cost of running your kitchen and paying your team. 

Balancing these two is key. If labor goes up, you may need to trim food costs—or vice versa. 

You can also look beyond pay cuts. Investing in solutions like restaurant POS software, restaurant staff scheduling software, or kitchen automation programs can help lower long-term labor costs without sacrificing service or quality.

4 STRATEGIES TO MANAGE AND LOWER RESTAURANT LABOR COSTS 

You can reduce labor costs without sacrificing quality. Small scheduling and training tweaks can have a big impact 

1. OPTIMIZING SCHEDULING AND STAFFING EFFICIENCY 

A better scheduling process helps prevent wasted hours and inflated payroll costs. To stay efficient: 

• Use scheduling software to align staffing with demand and avoid overstaffing. 
• Cross-train employees so they can handle multiple roles during slower shifts. 
• Adjust staffing based on sales patterns, not guesswork—track trends and plan ahead. 
  

These small shifts can lead to big savings over time, without hurting your service or team. 

2. USING TECHNOLOGY TO CONTROL LABOR COSTS

The right technology can lower labor costs while preserving service quality. Here’s how to make it work: 

• POS and workforce tools help track hours, sales, and productivity in real time. 
• AI-driven scheduling, mobile ordering, and self-service kiosks lessen the need for extra staff. 
• Automated restaurant payroll software reduces errors and saves hours on administrative work. 

Small tech upgrades can lead to impactful savings and free up time to focus on other important areas of your business. 

3. REDUCING EMPLOYEE TURNOVER TO LOWER COSTS

Turnover is expensive. When staff leave, you spend more on hiring, training, and lost productivity. The best way to lower those costs? Keep your team happy and engaged using these methods: 

• Offer competitive pay and benefits to attract and keep strong talent. 
• Give restaurant employees room to grow, with clear paths for advancement. 
• Foster a positive work culture where people feel respected and supported. 

Retaining good staff saves money and builds a stronger, more consistent team. 

4. ADJUSTING PRICING & MENU STRATEGY TO OFFSET LABOR COSTS

Labor costs don’t exist in a vacuum. Your menu and pricing play a big role too. To protect your margins: 

• Raise prices on select items to reflect labor increases without scaring off customers. 
• Promote high-margin dishes that generate more profit per sale. 
• Streamline your menu to reduce prep time, simplify training, and lower labor needs. 

Smart menu strategies help you balance rising labor costs while keeping your kitchen running smoothly and your profits intact. 

3 TYPICAL MISTAKES THAT LEAD TO HIGH LABOR COSTS 

Even with the right tools and planning, small missteps can send your labor costs soaring. Spotting the most common ones can help you course-correct before it affects your bottom line. 

1. OVERSTAFFING OR UNDERSTAFFING

The presence of too many staff members during slow shifts leads to wasted payroll. Too few during busy hours hurts service and slows sales. 

To get it right, review historical sales trends when building your schedule. Then, use flexible shifts to match staffing to real-time demand. Getting the balance right requires data, not guesswork. 

2. NOT TRACKING LABOR COSTS IN REAL-TIME

Are you only reviewing labor reports once a month? It's easy to miss problems. Weekly or even daily tracking helps you catch spikes early and make adjustments quickly. 

With the right tools, you can see how labor compares to sales in real time and make changes to staffing before costs get out of hand. Up-to-date insights keep you proactive, not reactive. 

3. FAILING TO OPTIMIZE EMPLOYEE PRODUCTIVITY

Idle time adds up, and so do the costs. If staff members are just standing around, you're paying for hours without return. Boost productivity by: 

• Assigning side tasks during slower periods. 
• Encouraging multitasking where it makes sense. 
• Setting clear expectations for shift responsibilities. 

A more efficient team means fewer wasted labor hours and better service, without burning out your staff. 

HOW TO FORECAST AND PLAN FOR FUTURE LABOR COSTS 

Planning ahead helps you avoid surprises. By looking at trends regarding your sales data and staffing, you can make smarter, data-backed decisions for the weeks and months ahead. 

ANALYZING SALES DATA TO PREDICT LABOR NEEDS 

Use past sales to spot patterns like busy weekends or slow seasons. From there, build schedules based on real demand, not guesses. Then, try predictive scheduling tools to match labor to sales forecasts. Planning this way helps reduce waste and keeps labor costs in check. 

FACTORING IN WAGE INCREASES AND LABOR MARKET CHANGES 

Wage hikes and new labor laws can raise your costs quickly. Staying ahead means watching for changes at the local, state, or national level. To protect your margins: 

• Review your pricing model regularly. 
• Adjust menu prices when needed. 
• Plan for increases in advance. 

A proactive approach helps you stay competitive and profitable. 

FREQUENTLY ASKED QUESTIONS ABOUT RESTAURANT STAFF COST PERCENTAGE 

Understanding the restaurant staff cost percentage can be tricky. These answers clear up common questions to help you manage costs with more confidence. 

What is a good labor cost percentage for a restaurant? 

A good labor cost percentage depends on your restaurant type. Quick-service restaurants often target 25–30%. Casual dining restaurants aim for 30–35%, while fine dining restaurants can go as high as 40%. 

How much does it cost to staff up a restaurant? 

The cost to staff up a restaurant can vary significantly. It depends on your size, service style, and location. Costs include employee wages, taxes, benefits, and training making it one of the biggest ongoing business expenses. 

What percentage should your overhead cost be in a restaurant? 

Overhead costs vary, but they should leave enough room for profit after food and labor. Rent, utilities, insurance, and supplies all add up quickly. As such, keeping them in check is crucial for profitability. 

What's the typical restaurant markup?  

The typical restaurant markup is between 3x to 4x the food cost. However, this can vary significantly by restaurant type. The goal is to cover costs, stay competitive, and maintain healthy profit margins. 

MANAGING LABOR COSTS FOR LONG-TERM SUCCESS  

Managing labor costs isn’t just about saving money. It’s about setting your restaurant up for long-term success. With smart planning, the right tools, and a proactive mindset, you can stay on budget without lowering quality standards. 

Paytronix makes this easier with tools for scheduling, labor tracking, and payroll optimization—all in one place. Book a demo to see how Paytronix helps you simplify your tech stack and spend more time hiring, training, and growing your team.