Management & Operations

Restaurant Labor Costs Explained: How to Calculate, Control, and Optimize Labor in 2026

The Rezku Team

Feb 2, 2026

Labor is the largest controllable expense in most restaurants — and also the one most likely to spiral into unprofitable territory. Food costs fluctuate with vendors and seasonality, but labor decisions have to be made every single day, sometimes every shift. Understanding labor costs is not just about accounting; it’s about running a restaurant that can survive slow seasons, unexpected call-outs, and rising wage pressure.

For new operators and students of the industry, labor cost is often reduced to a single “target percentage.” That oversimplification is where trouble starts. Labor cost management is a discipline, not a static number. And it touches many operational aspects including scheduling, service design, menu pricing, and technology choices.

What Restaurant Labor Cost Actually Encompasses

Labor cost is more than what shows up on a paycheck. To manage it properly, operators need to look at the fully loaded cost of employing a team.

Total labor cost typically includes:

Hourly wages and salaried management pay
Employer payroll taxes (FICA, FUTA, SUTA)
Overtime pay
Paid time off and sick leave
Health insurance or other benefits
Bonuses or incentive pay

Ignoring any of these creates an artificially low labor percentage that feels good on paper but falls apart on the P&L. Restaurants that “can’t figure out where the money went” are often undercounting labor.

How to Calculate Labor Cost Percentage (The Right Way)

The formula itself is simple:

(Total Labor Cost ÷ Total Revenue) × 100

What matters is consistency. Labor and revenue must cover the same time period — weekly, not monthly, is the standard metric for operational control.

Example:

Total weekly labor cost: $9,200
Total weekly revenue: $30,000

Labor Cost Percentage = 30.6%

Weekly tracking allows operators to spot problems while they’re still fixable. Waiting for a monthly P&L usually means the damage is already done.

Modern POS systems make this easier by tying sales data directly to labor reporting. Platforms like Rezku allow operators to view labor alongside revenue trends in a single dashboard, instead of stitching together spreadsheets from payroll and POS exports.

What Is a “Good” Labor Cost Percentage?

There is no universal right answer — only ranges that reflect different service models.

Typical benchmarks:

Quick Service (QSR): 25–30%
Fast Casual: 28–32%
Casual / Full Service: 30–35%
Fine Dining: 35–40%

The mistake is chasing the lowest number. Understaffing saves money until it destroys service, burns out the team, and increases turnover. The goal is not minimal labor — it’s productive labor.

Why Labor Gets Out of Control (And It’s Not Just Wages)

Rising wages get the blame, but most labor problems come from operational blind spots.

1. Scheduling Without Sales Context

Schedules built from habit instead of sales data almost always overstaff slow shifts and understaff busy ones. This creates overtime, stress, and missed revenue opportunities.

2. Overtime as a Band-Aid

Consistent overtime usually signals a broken core schedule, not exceptional performance. If overtime is predictable, it should be replaced with smarter staffing.

3. Dead-Time Overlap

Shift change overlap feels safe but quietly bleeds labor. Ten extra minutes across multiple employees, five days a week, adds up fast.

4. High Turnover

Replacing an hourly restaurant employee often costs thousands of dollars in hiring, training, and lost productivity. Turnover inflates labor costs even when wages stay flat.

Labor Cost Is an Operational System, Not a Spreadsheet

Strong labor control starts before the schedule is written.

Efficient kitchens, clear station responsibilities, and streamlined workflows reduce the number of labor hours required to produce the same volume of food. Cross-trained employees increase flexibility and reduce the need for excess coverage “just in case.”

Technology plays a role here — not by replacing managers, but by giving them visibility. POS platforms like Rezku allow operators to monitor labor performance against real-time sales, helping managers adjust staffing decisions before costs spiral.

Best Practices to Control Labor Without Killing Morale

Build Schedules Around Sales, Not Guesswork

Historical sales data is one of the most underused assets in restaurants. Scheduling to volume — not instinct — is the fastest way to tighten labor.

Use Staggered Start Times

Not every employee needs to clock in at the same moment. Staggered starts and short peak shifts reduce dead time while preserving service quality.

Train for Flexibility

Cross-trained staff can absorb spikes without adding bodies. One versatile employee often replaces two narrowly trained ones.

Track Weekly, Adjust Weekly

Labor control is iterative. Weekly review, weekly correction. Anything less frequent is reactive, not strategic.

Labor Cost vs Prime Cost

Labor cost is half of a more important metric: prime cost.

Prime Cost = Labor Cost + Cost of Goods Sold (COGS)

Most profitable restaurants aim to keep prime cost under 60% of revenue. This metric provides a clearer picture of whether a restaurant’s operating model actually works.

Why Labor Visibility Matters More in 2026

With tighter margins and higher expectations, labor decisions can no longer rely on instinct alone. Operators need systems that surface problems early — not after payroll is processed.

POS platforms like Rezku support this by pairing sales data with labor insights, helping operators schedule based on demand, monitor performance in real time, and make faster corrections.

Labor control isn’t about squeezing staff — it’s about running a smarter operation that works for both guests and the team.

FAQ: Restaurant Labor Costs

How often should labor cost percentage be calculated?
Weekly. Monthly is too slow for operational control.

Should owner pay be included in labor costs?
Yes. If the business cannot support a fair owner salary, labor costs are being understated.

Is lower labor always better?
No. Understaffing increases turnover, hurts service, and often costs more long-term.

What causes labor costs to spike suddenly?
Poor scheduling, unexpected overtime, call-outs, and inaccurate sales forecasting.

What tools help manage labor more effectively?
POS systems with integrated labor reporting and scheduling insights help managers tie staffing decisions directly to sales performance.

Restaurant Labor Costs Explained: How to Calculate, Control, and Optimize Labor in 2026