Use Our Free Restaurant Labor Cost Calculator!
Labor is one of the biggest expenses for any restaurant, sometimes accounting for as much as 25-40% of total sales.
Because it is one of your restaurant’s largest costs, it’s imperative that you keep a close eye on it and learn to manage it properly to maintain a healthy bottom line.
In this article, we’ll share with you a free downloadable labor cost calculator that you can easily use for your restaurant, along with a guide on how you can use it.
But, because simply downloading the calculator won’t give you all the answers, let’s take a closer look at the ins and outs of restaurant labor costs, so you have a solid understanding of how the numbers work behind the Excel formulas.
First, What is Labor Cost?
Labor cost is the total expense you pay your employees in exchange for their services to your restaurant.
It typically includes the following:
- Employee salaries and wages
- Payroll taxes
- Insurance
- Retirement account contributions
- Bonuses/Incentives
- Uniforms and work apparel
- Employee training costs
- Other benefits (meals and staff discounts, paid time off, commissions, etc.)
That is to say, if we were to create a mathematical equation for it, you simply add up all those items above, and voila, you get your restaurant’s total labor cost!
So, Why do you Need to Understand Labor Costs?
Profitability: As mentioned earlier, labor costs are part of your restaurant’s prime or major costs. If not managed properly, labor costs can significantly eat into your profits, regardless of how strong your sales are.
Efficient Staffing: Tracking your restaurant’s labor costs trend can help you see patterns in your staffing needs, allowing you to have enough staff during busy times without overscheduling during quieter hours.
Long-Term Planning: Monitoring labor costs helps you plan ahead, not just for the regular days, but especially when there’s a need for additional manpower during weekends, holidays, or special events.
What’s the Ideal Labor Cost Threshold?
The ideal labor cost percentage varies based on the type of restaurant you operate.
Generally, the ideal mark we suggest here at U-Nique Accounting is around 30% to keep profit margins healthy.
Quick Service/Fast Food: 25-30%
Fast food restaurants typically have lower labor costs because of the standardized, efficient processes that require less staff per customer.
Casual Dining: 30-35%
With a broader menu and more emphasis on customer service, casual dining establishments may see slightly higher labor costs.
Fine Dining: 35% or more
Fine dining restaurants require more specialized staff, such as chefs, sommeliers, and hosts, leading to higher labor costs. However, these establishments often have higher check averages, which can offset these expenses.
How to Calculate Labor Cost and Labor Cost Percentages
Let’s look at a hypothetical example in order to understand this better.
Calculating Labor Costs
For simplicity, let’s say a small restaurant runs on four employees and incurs the following costs for a week:
Employee | Hourly Wage | Hours Worked | OT Hours | Total Regular Pay | Total Overtime Pay | Total Wages |
Cook | $20 | 40 | 5 | $20 × 40 = $800 | $30 × 5 = $150 | $950 |
Server | $15 | 30 | 2 | $15 × 30 = $450 | $22.5 × 2 = $45 | $495 |
Dishwasher | $12 | 25 | 0 | $12 × 25 = $300 | $0 | $300 |
Manager | $25 | 50 | 0 | $25 × 40 = $1,000 | $0 | $1,000 |
The overtime pay rate is usually 1.5 times the regular hourly wage.
Now, add other labor-related costs for the week:
Training Costs: $100
Payroll Taxes: $300
Insurance: $150
Retirement Contributions: $75
Bonuses: $50
Other Benefits: $25
The total labor cost would be:
= $2,745 (salaries and wages) + $100 (training costs) + $300 (payroll taxes) + $150 (insurance) + $75 (retirement contributions) + $50 (bonuses) + $25 (other benefits)
= $3,445
So, your total labor cost for the week is $3,445.
Calculating Labor Cost Percentage
Labor Cost Percentage can be calculated in two different ways:
As a Percentage of Sales:
This helps you see how much of your revenue is going towards labor.
Labor Cost Percentage (of Sales) = (Total Labor Cost ÷ Total Sales) × 100 |
Using the total labor cost from the previous example, let’s say your restaurant’s total sales for the week were $10,000.
Labor Cost Percentage (of Sales) = ($3,445 ÷ $10,000) × 100
= 34.45
So, your labor cost as a percentage of sales is 34.45%. This means that about 34 cents of every dollar earned goes to cover labor costs.
As a Percentage of Operating Costs:
This gives you insight into how labor costs compare to your total operating expenses, showing its share in the overall cost structure.
Labor Cost Percentage (of Operating Costs) = (Total Labor Cost ÷ Total Operating Costs) × 100 |
Let’s assume your restaurant’s total operating costs for the week, including rent, utilities, food supplies, and other expenses, add up to $7,000.
Labor Cost Percentage (of Operating Costs) = ($3,445 ÷ $7,000) × 100
= 49.21%
So, your labor cost as a percentage of operating costs is 49.21%. This means that nearly half of your operating expenses go towards paying your staff.
Using Our Free Labor Cost Calculator
As promised, here’s our free downloadable labor cost calculator.
The template consists of two tabs: salaries & wages calculator and labor cost as percentage of sales calculator.
- Salaries & Wages Calculator
Use this tool to calculate your employees’ regular and overtime pay, with weekly and monthly totals linked to the other tabs for labor cost calculations.
Just fill in the light blue cells.
We’ve completed the first week’s example to get you started.
- Labor Cost Percentage of Sales Calculator
Column A lists the main labor cost items, such as salaries and wages (linked to the first tab), along with other benefits. You can add or remove items as needed for your restaurant.
Fill in the amounts for each labor cost item, except for salaries and wages, in the blue-highlighted cells. The totals are automatically calculated at the bottom.
Also, enter your weekly sales figures to calculate your labor cost percentage based on sale
Need Extra Help Understanding Your Restaurant Labor Costs?
Knowing how to calculate labor costs is a great start, but interpreting the numbers and managing them properly is what truly makes a difference for your restaurant’s profitability.
If managing labor costs still feels overwhelming, or if you want to take a deeper dive into optimizing your restaurant’s finances, we’re here to help.
Our team at U-Nique Accounting specializes in providing accounting support tailored for restaurant owners, from basic bookkeeping to handling your taxes.
Simply head over to our Getting Started page to book your first introductory call with us.
Until next time!
By MATT CIANCIARULO
