What is payroll percentage?
Payroll percentage is the portion of your restaurant's sales spent on payroll costs during a set period. It shows how much labor costs compared to revenue.
How to Calculate Restaurant Payroll Percentage
Understanding Payroll Percentage
Your restaurant payroll percentage is a simple way to see how much of your sales are being spent on payroll. It answers one question - "For every dollar I sell, how many cents go to payroll?" If your payroll percentage is 30%, it means about $0.30 of every $1.00 in sales is going toward payroll costs.
Restaurant owners track payroll percentage because it's one of the fastest ways to spot whether staffing costs are in line with sales. Payroll is usually your largest controllable cost, and it can drift up without you noticing - especially during slow weeks, unexpected overtime, or when schedules don't match real demand. When the percentage is too high, your margins shrink. When it's too low, service can suffer because you may be understaffed.
One important detail- payroll percentage isn't just "hours worked." It's a relationship between two numbers - payroll dollars and sales dollars - for the same time period. That's why the same schedule can look "fine" on a busy weekend but look "bad" on a slow Tuesday. The payroll didn't change much, but the sales did, so the percentage jumps.
The Core Formula You'll Use
To calculate restaurant payroll percentage, you only need one formula -
Payroll Percentage = (Total Payroll Cost / Total Sales) x 100
That's it. The key is making sure the two numbers you use match the same time period (same week, same day, same month) so the result is meaningful.
Step 1. Get your total payroll cost
Start with your total payroll cost for the time period you're measuring. In many restaurants, this includes -
- Hourly wages (regular hours)
- Salaries (managers, kitchen leaders, admins)
- Overtime and premium pay
Some owners also include employer payroll taxes and other employer-paid costs (like workers' comp). Whether you include those depends on how you want to track payroll percentage. The most important rule is- pick a method and stay consistent.
For this section, keep it simple - use your payroll register total for the same time window as your sales.
Step 2. Pull your sales number
Next, pull your sales for the same time period from your POS. You'll usually choose one of these -
- Gross sales. Total sales before discounts/returns (common and easy)
- Net sales. Sales after discounts/returns (often better for accuracy)
Either can work, but don't mix them week to week. If you switch back and forth, your payroll percentage will look like it's changing even when payroll didn't.
Step 3. Do the math
Example -
- Total payroll cost for the week. $12,000
- Total sales for the week. $40,000
Payroll Percentage = (12,000 / 40,000) x 100
Payroll Percentage = (0.30) x 100
Payroll Percentage = 30%
Always match the timing, if payroll is for a Monday-Sunday week, your sales must be Monday-Sunday too. If you match the time periods, your payroll percentage becomes a reliable number you can manage.
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What to Include in Payroll
The biggest reason payroll percentage gets confusing is that "payroll" can mean different things depending on what report you're looking at. If you want a number you can trust (and compare week to week), you need to decide what counts as payroll and use the same definition every time.
The basics most restaurants should include
At a minimum, include the costs that show up on your payroll register -
1. Hourly wages
- Regular hours for FOH and BOH staff
- Training hours
- Meeting time if it's paid
2. Salaried pay
- Managers, chefs, supervisors, or any fixed weekly salary
- If you pay a salary but also add bonuses, keep the bonus rule consistent (more on that below)
3. Overtime and premium pay
- Overtime hours
- Double time (if applicable)
- Split shift premiums or other required premiums (if applicable)
These items matter because they can raise payroll percentage quickly without increasing sales.
The "true payroll cost" items owners often forget
If you want payroll percentage to reflect what payroll really costs the business, you may also include -
1. Employer payroll taxes
- Employer share of FICA (Social Security/Medicare)
- Federal and state unemployment taxes (FUTA/SUTA)
These costs rise as wages rise, so tracking them helps you see the full impact of labor.
2. Workers' comp and employer-paid benefits (optional)
- Workers' comp premiums (if you track them per payroll period)
- Health benefits, paid time off, or employer contributions
Some owners track these separately, but including them can give you a more complete payroll percentage.
How tips fit in
- Cash tips usually are not paid by the restaurant (but may be reported).
- Credit card tips may pass through payroll, but they're not always a labor cost in the same way wages are.
A simple rule, calculate payroll percentage using the costs the restaurant pays (wages, salaries, OT, and employer costs). Track tips separately so your payroll percentage doesn't get distorted.
Once you know what counts as payroll, the next step is choosing the right sales number - gross or net - so the percentage is consistent and comparable.
Gross Sales vs Net Sales
Payroll percentage is only useful if your sales number is consistent. The most common question is whether you should divide payroll by gross sales or net sales. Either can work - what matters is choosing one method and using it the same way every period.
Option A - Use gross sales
Gross sales is your total sales before discounts, comps, promotions, and returns. Many POS systems show this clearly, and it's easy to pull quickly.
Why owners like gross sales -
- Easy to find and explain
- Stable for quick weekly tracking
- Works well if you don't run heavy discounting
If you run lots of promos (BOGO, coupons, loyalty offers) or do frequent comps, gross sales can make labor look "better" than it really is, because you're dividing by a bigger number than what you actually kept.
Option B - Use net sales
Net sales is gross sales minus discounts, comps, and returns. This number is closer to what your restaurant actually earned from sales activity.
Why net sales is often better -
- Gives a truer picture of labor cost vs real revenue
- Helps when promotions are frequent
- Makes comparisons across weeks more meaningful when discount levels change
Where it can be tricky -
- Some POS reports define net sales differently
- If you compare your number to other restaurants, they may be using gross sales
A simple rule to choose the right one -
- If your restaurant runs few discounts/comps, use gross sales for simplicity.
- If discounts and promos are a big part of your business, use net sales so payroll percentage reflects reality.
Most restaurants exclude sales tax from the sales number because it isn't revenue you keep. Use the sales figure your POS labels as sales before tax.
Once you choose your sales definition (gross or net), lock it in -
- Use the same report
- Use the same time window
- Compare the number to the same target range
How to Calculate Payroll Percentage for a Week
Weekly payroll percentage is one of the easiest ways to stay on top of labor because it's frequent enough to catch problems early, but not so frequent that it becomes noise. Here's a simple process you can repeat every week.
Step 1. Pick the week you're measuring
Start by defining your week. Common options are -
- Monday-Sunday
- Sunday-Saturday
- Your pay period week (if payroll runs weekly)
Whatever you choose, make sure you pull sales and payroll for the exact same dates. If your sales are MondaySunday but payroll is on a different range, your percentage will be off.
Step 2. Pull total sales for that week
From your POS, export or record your sales total for that week -
- Use gross sales or net sales (whichever you decided in Section 4)
- Use sales before tax
- Keep the same sales report every week
Write down the total. Example, $52,000 weekly sales.
Step 3. Pull total payroll cost for that week
From your payroll register (or labor report), gather your payroll total for the same dates. Include what you decided counts as payroll -
- Hourly wages
- Salaries
- Overtime/premium pay
- Optional employer taxes/benefits (if you include them)
Write down the total. Example. $15,600 weekly payroll.
Step 4. Do the calculation
Use the formula -
Payroll Percentage = (Payroll / Sales) x 100
Example -
Payroll. $15,600
Sales. $52,000
15,600 / 52,000 = 0.30
0.30 x 100 = 30% payroll percentage
Step 5. Compare to your target and flag issues
Now ask -
- Is this within my target range?
- If it's higher than target, was it caused by lower sales, higher payroll, or both?
A simple habit, track three numbers weekly -
1. Sales
2. Payroll dollars
3. Payroll percentage
That way you can quickly see what changed.
FOH, BOH, and Management
Your total payroll percentage tells you if labor is high, but it doesn't tell you where the problem is. That's why many restaurant owners break payroll into simple departments - so you can spot what's driving the percentage up and make the right fix.
A basic department breakdown looks like this -
1. FOH (Front of House) - servers, hosts, bartenders, bussers, runners, cashiers (depending on your concept)
2. BOH (Back of House) - cooks, prep, dish, expo, kitchen leads
3. Management - salaried managers and any hourly managers or supervisors
Step 1. Split your payroll dollars into buckets
You can do this in two ways -
1. From payroll reports. Many payroll systems let you run totals by job code or department.
2. From timekeeping/POS labor reports. If your staff clock in under roles (server, cook, etc.), you can total wages by role.
Your goal is to get weekly totals like -
- FOH payroll. $X
- BOH payroll. $Y
- Management payroll. $Z
Step 2. Decide what sales number each department uses
Most restaurants use the same total weekly sales for all departments. That keeps the math consistent and makes it easy to compare departments week to week.
So each department payroll percentage is -
Department Payroll % = (Department Payroll / Total Sales) x 100
Example -
Sales. $50,000
FOH payroll. $6,000, 6,000 / 50,000 = 12%
BOH payroll. $8,500 = 17%
Management payroll. $3,000 = 6%
Total payroll % = 12% + 17% + 6% = 35%
Step 3. Handle employees who work multiple roles
If someone works both FOH and BOH shifts, split their pay based on -
- The role they clocked into (best), or
- Hours worked in each role (good enough)
Don't overthink it - aim for "accurate enough" so you can make better decisions.
Why this breakdown helps
When payroll percentage is high, department math tells you the "why" -
- High FOH % might mean overstaffed shifts or low guest counts.
- High BOH % might point to prep inefficiency, low throughput, or kitchen over-scheduling.
- High management % often shows up when sales drop or schedules rely on too many manager hours.
Common Calculation Mistakes
Payroll percentage is simple math, but small mistakes can make the number misleading. Here are the most common issues restaurant owners run into - and the easy fixes.
Mistake 1. Mixing time periods
This is the number 1 problem. Example, you calculate payroll from a pay period (like Wednesday-Tuesday) but sales from a calendar week (Monday-Sunday). The percentage you get won't reflect reality.
Fix - Always match the dates. If payroll covers Feb 2-Feb 8, sales must cover Feb 2-Feb 8.
Mistake 2. Using the wrong sales number
Some weeks you use gross sales, other weeks net sales, or you pull sales from different POS reports. This creates "fake changes" in your payroll percentage.
Fix - Choose one,
- Gross sales (before tax), or
- Net sales (before tax)
Then use the same POS report every time.
Mistake 3. Forgetting overtime and premium pay
If you only total regular wages, you'll understate payroll. Overtime and premiums can push payroll percentage up fast.
Fix - Use a payroll total that includes,
- Regular wages
- OT and premium pay
- Salaries (Plus employer taxes/benefits if you track "true payroll cost.")
Mistake 4. Treating tips like payroll cost
Credit card tips may appear on payroll reports, but they aren't always a "restaurant-paid" labor cost in the same way wages are. Including them can inflate payroll percentage and make it hard to compare periods.
Fix - Calculate payroll percentage using the costs the restaurant pays (wages, salaries, OT, employer costs). Track tips separately.
Mistake 5, Comparing a slow week to a busy week without context
Payroll percentage rises when sales dip - even if labor stayed the same. Owners sometimes "panic cut" when the real issue was low sales.
Fix - Track three numbers together,
1. Sales
2. Payroll dollars
3. Payroll percentage
If payroll dollars are steady but sales fell, the percentage will rise.
Mistake 6. Not separating one-time payroll items
Hiring bonuses, retro pay, or large payouts can spike one week and distort your trend.
Fix - Note one-time items in your weekly log so you don't make permanent changes based on a one-off expense.
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Frequently Asked Questions
How often should I calculate payroll percentage?
Weekly is the most practical for owners. It's frequent enough to catch issues early, but not too time-consuming.
What should I do if my payroll percentage is too high?
First figure out the cause. Lower sales, higher payroll dollars, overtime, or scheduling mismatch. Fix the driver - don't guess.
What's the formula for payroll percentage?
Payroll Percentage = (Total Payroll Cost / Total Sales) x 100
What's the difference between payroll percentage and labor percentage?
Many people use them interchangeably, but "labor percentage" sometimes includes additional labor-related costs beyond payroll, depending on the restaurant's definition. Consistency matters more than the label.
