Running a quick service restaurant means watching your costs closely - especially labor costs. Paying employees is one of the biggest expenses in your business, and if you're not careful, it can get out of hand fast. That's why it's so important to know exactly how to calculate labor cost and check it often.

Labor costs include more than just hourly wages. It also covers payroll taxes, benefits, paid time off, and anything else you spend on your employees. When you add all that up and compare it to your total sales, you get your labor cost percentage. This number helps you see if you're spending too much or staying within a healthy range.

Don't worry if math isn't your thing - calculating labor cost is easier than it sounds. All you need are a few basic numbers, and we'll walk you through the steps. Once you get the hang of it, you'll be able to use this information to make better choices about your schedule, hiring, and pricing.

Before you can calculate labor cost, it's important to understand what actually goes into it. Many restaurant owners think it's just the hourly wages they pay their team - but it's more than that. Labor cost includes everything you pay to have employees working in your business.

Here's a breakdown of what should be included -

1. Hourly Wages - This is the most obvious part. It includes the pay for cashiers, cooks, prep staff, and other hourly team members.
2. Salaries - If you have salaried managers or supervisors, their pay should also be included in your labor cost.
3. Overtime Pay - Any extra pay for overtime hours needs to be counted. Overtime can add up quickly and throw off your labor cost if you don't track it carefully.
4. Payroll Taxes - As an employer, you pay taxes for Social Security, Medicare, unemployment insurance, and sometimes local taxes. These are part of your labor expenses.
5. Employee Benefits - If you offer health insurance, retirement plans, or other benefits, include those costs too.
6. Bonuses and Incentives - Performance bonuses, holiday pay, or any other extra compensation should be counted.
7. Paid Time Off - If you pay for vacation, sick days, or holidays, that also counts as labor cost.

By including all of these pieces, you'll get a full picture of what you're really spending on labor. Leaving anything out will give you inaccurate numbers - and that can lead to poor decisions about staffing or scheduling.

Now that you know what goes into labor cost, let's look at how to calculate it. The good news is the formula is simple and doesn't require any special tools or accounting background. You just need two numbers-

1. Your total labor cost for a specific time period (week, month, or shift)
2. Your total sales for that same time period

The formula looks like this -

Labor Cost Percentage = (Total Labor Cost / Total Sales) x 100

Let's go through an example -

Imagine you ran your restaurant for a week and found these numbers -

Total labor cost (wages, taxes, benefits, etc.) - $4,000

Total sales - $16,000

Using the formula -
($4,000 / $16,000) x 100 = 25%

This means your labor cost is 25% of your total sales for that week.

Why is this number important? Because it shows how much of your income is going toward paying your staff. Most quick service restaurants aim for a labor cost between 20% and 30%. If your percentage is too high, it may be a sign you're overstaffed, paying too much overtime, or not bringing in enough sales. If it's too low, you might be understaffed and risking service quality.

This formula works for any time period - daily, weekly, monthly, or even per shift. Just make sure you're comparing labor costs and sales from the same time frame.

Once you know your labor cost percentage, you can start making smart choices to improve it.

To calculate labor cost accurately, you need solid data. Guesswork doesn't cut it. Even small mistakes - like forgetting to include payroll taxes or missing a few overtime hours - can throw off your numbers. That's why it's important to know exactly where to find the right information and how to keep it organized.

Start with your payroll records. These should give you a detailed breakdown of all wages paid, including hourly wages, salaries, bonuses, and overtime. Make sure you're also factoring in any employer-paid taxes, such as Social Security, Medicare, and unemployment insurance. If you provide benefits like health insurance or paid time off, include those costs too.

Next, you'll need your sales reports. These can usually be pulled straight from your POS (point of sale) system. Make sure you're using the same time period for both your sales and your labor numbers. For example, if you're calculating weekly labor cost, only include sales from that same week.

Accurate time-tracking is also critical. Your employees should be clocking in and out properly for every shift. A good time-tracking system helps you see exactly how many hours each person worked, including breaks, overtime, and missed punches. Without this, you risk underreporting labor and misjudging your actual costs.

Organizing your data may take a little extra effort at first, but it pays off. When you have clear numbers for both labor cost and sales, you'll be able to calculate your labor cost percentage with confidence - and make smarter decisions for your restaurant.

Once you understand the basic formula and have your data ready, you can decide how often to calculate labor cost. Many quick service restaurant owners look at labor cost weekly or monthly, but breaking it down per shift can give you even more control over your operations.

Weekly and Monthly Calculations
Calculating labor cost weekly or monthly helps you track long-term trends. Weekly checks help you spot problems early, like rising overtime or slow sales. Monthly reviews give you a broader view of how your labor cost is affecting your profits over time. These timeframes are great for reviewing schedules, adjusting staffing plans, or comparing your labor cost to your sales goals.

Per Shift Calculations
If you want to get really detailed, calculating labor cost per shift (morning, afternoon, night) can show you exactly where you're over or under-staffed. For example, you might notice that your lunch shift has a higher labor cost because you're scheduling too many people for a short rush. Or maybe your dinner shift runs lean but results in longer wait times. Per-shift tracking gives you real-time insights and helps you make quick adjustments.

No matter the time period, the calculation is the same -

Total labor cost / total sales x 100

Just make sure you match your labor numbers with the sales for that same period. That way, your labor cost percentage will give you an accurate picture of how your restaurant is performing - day by day, week by week, or month by month.

Once you've calculated your labor cost percentage, the next question is - what's a good number? For most quick service restaurants, the ideal labor cost typically falls between 20% and 30% of total sales. Staying within this range helps you balance staffing needs while still keeping your business profitable.

However, your ideal percentage might depend on a few different factors. For example, if your restaurant uses more automation, like self-order kiosks or online ordering, you might be able to run with a lower labor cost. On the other hand, if your menu is complex or you offer table service in addition to quick service, your labor needs (and costs) may be higher.

Other things that affect your labor cost include -

1. Location - Restaurants in big cities often deal with higher minimum wages, which push labor costs up.
2. Hours of operation - Staying open late or 24/7 means more shifts and potentially more overtime.
3. Sales volume - Lower sales with fixed labor (like a salaried manager) can make your labor cost percentage spike, even if you're not overstaffed.

If your labor cost is regularly above 30%, it might be time to look at your scheduling, overtime, or staffing levels. If it's consistently below 20%, double-check that you're not short-staffing and hurting the customer experience.

Knowing these benchmarks gives you something to aim for. It also helps you figure out what's normal for your restaurant and what needs to change. The key is to track labor cost regularly and adjust based on what the numbers tell you.

Managing labor cost isn't just about cutting hours - it's about working smarter. Reducing labor cost the right way means keeping your staff productive, your service levels high, and your customers happy. Here are a few simple tips to help you lower labor cost without sacrificing quality.

1. Cross-train your staff.
Train employees to handle multiple roles, like switching between the register and food prep. This gives you more flexibility during slow periods and helps reduce the number of people you need on shift.

2. Avoid unnecessary overtime.
Keep a close eye on who's working extra hours. Overtime pay adds up fast and can push your labor cost above your target. Using a time-tracking tool or setting alerts for when employees get close to 40 hours can help you stay in control.

3. Use smarter employee scheduling.
Base your schedule on your actual sales patterns, not just guesswork. Look at your busiest times and slow periods so you can match the right number of employees to the expected demand. Overstaffing during slow hours is one of the easiest ways to lose money.

4. Adjust shifts in real-time.
If business is slower than expected, don't be afraid to send someone home early or delay the start of a shift. Keeping labor lean during off-peak times can make a big difference over the course of a week.

5. Plan ahead for holidays and events.
Big events or local holidays can throw off your usual sales. Plan your staffing accordingly so you're not caught over- or under-staffed.

A few small changes in how you manage your team can add up to big savings - and help keep your restaurant running smoothly.

Calculating labor cost isn't something you do just once - it's a habit that should become part of your regular routine as a quick service restaurant owner. When you track it consistently, you'll spot patterns, fix problems faster, and make better decisions for your business.

Set aside time every week or month to review your labor cost. It doesn't have to take long - just gather your labor expenses, compare them to your sales for the same period, and use the formula to find your labor cost percentage. The more often you do it, the easier it becomes.

Keep a record of your results so you can track how your labor cost changes over time. Are your costs creeping up slowly? Did a new schedule or change in hours affect your numbers? Having this kind of insight helps you stay one step ahead and avoid surprises.

Also, involve your managers in the process. Share the numbers with them and explain what they mean. When your team understands how labor cost affects the restaurant's performance, they'll be more mindful when making staffing decisions or approving time-off requests.

Labor cost is one of the biggest factors that can affect your bottom line. But with a little effort and attention, it's also something you can control. By making labor cost tracking part of your regular operations, you'll build a stronger, more profitable business - one shift, one week, and one paycheck at a time.