Labor Cost Restaurant Calculator Tool

As a restaurateur, your employees are an essential part of ensuring your restaurant runs smoothly and that you deliver great service. And since labor is typically your biggest operating expense, managing your labor costs is one of the most critical restaurant operating costs to keep an eye on. That’s why it can be helpful to monitor your labor costs using a labor cost restaurant calculator to avoid unnecessary costs, like unplanned overtime pay.

Here is a free labor cost calculator that you can use to determine your restaurant’s total labor cost, as well as your labor cost percentage:

Now that you’ve had a chance to calculate your total cost using our restaurant labor cost calculator, let’s do a deeper dive into what is a good labor cost for a restaurant. Continue reading to learn:

• What is a restaurant’s labor cost?
• How to calculate labor cost
• Restaurant labor costs FAQs

What is a Restaurant’s Labor Cost?

In the context of a restaurant, labor cost is the total amount spent on labor, including wages, salaries, benefits, and taxes. It’s an important operating cost that should be taken into consideration when determining profitability and making cost-saving decisions.

How to Calculate Labor Cost

Calculating your labor cost allows you to break down what actually goes into your labor costs and provides you with a bigger picture of your expenses. Ultimately, this exercise allows you to identify opportunities to improve profitability and enhance your operational efficiency. For example, if you notice your total labor costs are way above the industry average of 30%, you can pinpoint which cost you can potentially reduce or avoid, such as overtime pay.

Use the labor cost formula or our restaurant labor cost calculator above to calculate your own restaurant’s labor cost.

Labor Cost Formula

Without the help of a labor cost calculator, the formula for calculating your restaurant’s labor cost is:

Total salary and hourly wages of employees + total cost of benefits + total cost of payroll taxes + total cost of overtime pay + total cost of other labor-related expenses = total labor cost 

To help you see how much of your total revenue is being spent on labor, knowing what your labor cost percentage can be a helpful indicator. Labor cost percentage is the percentage of how much of your revenue is then being spent on labor over a given period of time. To calculate your restaurant’s labor cost percentage without a restaurant labor cost calculator, here is the formula:

Total Labor Cost Percentage = (Total Labor Cost/Total Annual Revenue)*100

Example of How to Calculate Labor Cost

It’s time to put the labor cost formula into application with an example calculation. Let’s say you operate a sushi restaurant and want to figure out how much you’ve been spending on labor in the past 12 months. When looking at your labor reports pulled from your POS system or labor management software, your total breakdown of your labor costs looks like the following:

Total Salary and Hourly Wages of Employees = $250,000

Total Cost of Benefits = $25,000

Total Cost of Payroll Taxes = $3,825

Total Cost of Overtime Pay = $20,000 

Total Cost of Other Labor-related Expenses = $10,000

Total Labor Cost = $308,825

Your total annual revenue for your sushi restaurant is $900,000, so to calculate your labor cost percentage, you can plug it into the formula:

Total Labor Cost Percentage = ($308,825/$900,000)*100 = 34%

This means the total labor cost in this example is $308,825, and 34% of the revenue is spent on labor.

Labor Cost FAQs

Looking for more information about labor costs beyond how to use a restaurant labor cost calculator? Here are some of the most commonly asked questions about restaurant labor costs. 

What Should Labor Cost Be in a Restaurant?

If you’re wondering what should labor cost be in a restaurant, the answer is, it depends. Labor cost can depend on many factors, including restaurant type, location of the restaurant, and total revenue. Here are some of the most common venue types and average labor cost percentage to help you determine what is a good labor cost for a restaurant.

How Do I Reduce My Restaurant’s Labor Cost?

The best way to reduce labor costs is by investing in restaurant labor management software, like TouchBistro Labor Management, for more efficient scheduling, as well as accurately predicting your labor needs using shift, guest, and sales data. 

With this kind of tool, you’ll be able to build schedules based on various labor targets, including your labor cost percentage. For example, if you want to keep your labor percentage at 28%, the scheduling tool will show you if you’re above or below your labor target based on the way the schedule is being built out. By using a labor management solution, you’ll be one step closer to reducing labor costs, like overtime pay, since you’re not incurring additional unplanned hours you didn’t initially account for.

Another way to reduce labor costs is to cross train your restaurant staff, so each member of your team is equipped with the skills and knowledge to do more than just the job they were hired for. This provides you with more flexibility when scheduling staff, as you can reduce the number of staff members per shift as well as minimize any staffing gaps, especially during the holidays, ultimately reducing overall labor costs. 

Lastly, you can reduce your labor cost by reducing turnover and increasing employee retention. This is because hiring and training new staff can end up being more costly than investing in your current team. You can achieve this by keeping your team happy by listening to feedback, providing opportunities for career development and growth, and offering flexible schedules if possible.

What Percentage Should Labor Cost Be in a Restaurant?

You should aim for a labor cost percentage below 30%, which is the restaurant industry’s benchmark. In other words, every $100 your restaurant generates in revenue, you should spend no more than $30 in labor costs. One way you can achieve this optimal labor cost percentage is by using a restaurant staffing calculator to more accurately predict the number of employees needed for each shift, and avoiding overstaffing issues that can incur additional costs. However, your labor cost percentage can vary depending on the type of venue you operate, as mentioned above.

In addition to using a restaurant staffing calculator to figure out how many staff you need to have on hand, you can also use our free labor cost restaurant calculator to better understand your labor spend. This way, you can see how much you spend on labor and identify any cost-saving opportunities.

by Megan Lee

Megan is the Content Marketing Specialist at TouchBistro, where she uses her passion for food to write about the restaurant industry. She’s a big “foodie” at heart, and you can always find her enjoying a delicious meal at a restaurant with friends and family, or cooking one up at home. She also loves relaxing with a good book and making progress at the gym.

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