What is a healthy labor cost percentage for a restaurant?

Quick-service restaurants target 25%, full-service restaurants target 30%, and fine dining restaurants target 35%. The healthy ceiling is roughly +5% above target. Above the ceiling and your margins erode fast; well below it and you're likely under-staffed (which costs you in revenue and customer experience).

How do I calculate labor cost percentage?

Add up your total labor cost for the period (gross wages + employer payroll taxes + benefits + workers comp), divide by total revenue for the same period, and multiply by 100. Most owners forget to include the employer-side taxes and workers comp, which understates true labor cost by 15-25%.

My labor cost percentage is over target — what do I do?

Two main levers: revenue and labor. On the labor side: tighten scheduling (cut a half-shift in slow periods), reduce turnover (the cost to replace a hire is 0.5-2x annual wages), and screen better at hire so you stop paying $20/hr to people producing $10/hr of value. On the revenue side: same staff producing more — better menu mix, faster table turns, upsell training. The biggest impact is usually fixing turnover.

Free calculator

Labor Cost Percentage Calculator

Plug in your revenue and total labor cost for the period. We’ll compute your labor cost percentage and compare it to the healthy benchmark for your industry.

Your business

Industry

This period

Total revenue (sales)

Use a single comparable period — e.g. last full month, last week, or last quarter.

Total wages paid (gross)

All hourly + salaried compensation, before taxes and benefits.

Payroll taxes (employer portion)

FICA, FUTA, SUTA. Typically ~10% of gross wages — adjust if you know yours.

Benefits / workers comp

Health insurance, retirement match, workers comp premiums for the period.

What counts as labor cost

The number most owners call “labor cost” is just gross wages. That’s wrong. True labor cost includes:

Gross wages — hourly + salaried, before any taxes.
Employer payroll taxes — FICA (7.65%), FUTA, SUTA. Roughly 10% of gross wages.
Workers comp — 1-5% of payroll depending on industry. Restaurants are typically 3-5%.
Benefits — health insurance, retirement match, paid time off if offered.

How My Friendly Staff helps lower labor cost

The single biggest driver of bloated labor cost in small business is turnover from bad hires. When you’re short-staffed, you hire whoever shows up. Every bad hire who stays 8 weeks costs you $5K-$10K in lost productivity and replacement effort. MFS screens every applicant in 2 minutes, scores them against your custom criteria, and ranks them — so the bottom 60% are filtered out before you spend a minute interviewing.

Try it free for a month

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