Labor costs should be 20-45% of revenue depending on your restaurant type. Include all costs: gross wages, employer contributions (20%), holiday pay, and sick leave. If labor + food costs exceed 70%, you won't have enough left for rent and profit.
Most restaurant owners think they know their labor costs — but they're usually wrong by 15-20%. You might be tracking gross wages, but forgetting employer contributions, holiday pay, and those hidden extras that silently drain your margins. Here's how to get the real number.
What are healthy labor cost percentages?
Labor costs are expressed as a percentage of your revenue. This gives you insight into how much of every euro that comes in goes toward salaries.
💡 Example calculation:
Restaurant with €50,000 monthly revenue:
- Gross wages: €18,000
- Employer contributions: €3,600
- Total labor costs: €21,600
Labor cost percentage: (€21,600 / €50,000) × 100 = 43.2%
Common percentages by business type:
- Fine dining: 35-45% (more service, complex dishes)
- Casual dining: 28-38% (standard service level)
- Fast casual: 25-32% (limited service)
- Delivery/takeaway: 20-28% (minimal service)
⚠️ Heads up:
Always include employer contributions (roughly 20% on top of gross wages). Many business owners forget this and underestimate their actual labor costs.
The complete formula for labor costs
For an accurate calculation, add up all wage-related expenses:
Total labor costs = Gross wages + Employer contributions + Extra costs
💡 Complete breakdown:
Restaurant with 5 FTE employees:
- Gross wages: €15,000/month
- Employer contributions (20%): €3,000
- Holiday pay: €1,250
- Sick leave costs: €400
- Training costs: €200
Total: €19,850/month
Employer contributions consist of:
- Social insurance
- Pension premium
- WGA/WIA insurance
- Unemployment insurance
Signs that your labor costs are too high
Watch out for these warning signals:
- Labor costs above 45% of revenue (for most restaurants)
- Rising percentages while revenue stays flat
- More hours than needed during quiet periods
- Excessive overtime due to poor planning
💡 Real-world example:
Bistro notices profits disappearing:
- Revenue: €35,000/month
- Labor costs: €17,500/month
- Percentage: 50%
This is too high. At 35% it would be €12,250 — a difference of €5,250 per month.
Impact on your total margin
Labor costs directly impact your net margin. Every percentage point too much costs you profit directly.
After managing kitchen operations for nearly a decade, I've seen restaurants fail because they ignored this simple math. Your labor and food costs combined should never exceed 70% of revenue.
Simple check formula:
If your labor costs + food cost exceed 70%, you're probably not earning enough.
⚠️ Heads up:
Don't forget fixed costs: rent, utilities, insurance. These come on top of labor and ingredient costs. For a healthy business, keep at least 10-15% net margin.
How to optimize your labor costs
Practical steps to get your labor costs under control:
- Plan schedules based on expected busy times
- Cross-train staff for flexibility
- Monitor hours per day/week and compare with revenue
- Automate where possible (orders, payments)
- Optimize your menu for more efficient preparation
Track your labor cost percentage monthly and compare it with your food cost. This way you can immediately see if your total costs are still healthy.
How do you calculate your labor cost percentage? (step by step)
Gather all labor costs from last month
Add up: gross wages, employer contributions, holiday pay, sick leave costs and other personnel expenses. Don't forget employer contributions - this is roughly 20% on top of your gross wages.
Determine your total revenue for the same month
Use your revenue excluding VAT for a fair comparison. You'll find this in your POS system or accounting records. Calculate using revenue from the same period as your labor costs.
Calculate your labor cost percentage
Divide your total labor costs by your revenue and multiply by 100. Formula: (Total labor costs / Revenue) × 100. Compare this with the benchmark for your type of business.
✨ Pro tip
Calculate your labor cost per guest served, not just percentage of revenue. If you're spending more than €8-12 per guest on labor (depending on your concept), you're likely overstaffed or inefficient.
Calculate this yourself?
In the KitchenNmbrs app you can do this in just a few clicks. 7 days free, no credit card.
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Frequently asked questions
What exactly are employer contributions?
Employer contributions are costs on top of gross wages: social insurance, pension premiums and unemployment insurance. This amounts to roughly 20% of the gross wage.
Should I include holiday pay in my labor costs?
Yes, holiday pay is part of your total labor costs. Spread it over 12 months to get a fair monthly percentage.
Are 40% labor costs always too high?
Not always. Fine dining restaurants often have 35-45% due to more intensive service. Fast casual usually falls between 25-32%. It depends on your concept and service level.
How often should I check my labor cost percentage?
Check it monthly to spot trends. Weekly is even better if you have lots of flexible staff or experience seasonal fluctuations.
What if my labor costs and food cost together exceed 70%?
Then it becomes difficult to make a profit after fixed costs. Check if your menu prices are current and if your schedules are efficiently planned.
📚 Sources consulted
- EU Verordening 852/2004 — Levensmiddelenhygiëne (2004) — Official source
- EU Verordening 853/2004 — Hygiënevoorschriften voor levensmiddelen van dierlijke oorsprong (2004) — Official source
- EU Verordening 1169/2011 — Voedselinformatie aan consumenten (2011) — Official source
- NVWA — Hygiënecode voor de horeca (2024) — Official source
- NVWA — Allergenen in voedsel (2024) — Official source
- Codex Alimentarius — International Food Standards (2024) — Official source
- FSA — Safer food, better business (HACCP) (2024) — Official source
- BVL — Lebensmittelhygiene (HACCP) (2024) — Official source
- Warenwetbesluit Bereiding en behandeling van levensmiddelen (2024) — Official source
- WHO — Foodborne diseases estimates (2024) — Official source
Food Standards Agency (FSA) — https://www.food.gov.uk
The HACCP standards shown in this application are for informational purposes only. KitchenNmbrs does not guarantee that displayed values are current or complete. Always consult the FSA or your local authority for the latest regulations.
Written by
Jeffrey Smit
Founder & CEO of KitchenNmbrs
Jeffrey Smit built KitchenNmbrs from 8 years of hands-on experience as kitchen manager at 1NUL8 Group in Rotterdam. His mission: give every restaurant owner control over food cost.
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