Every month since 2019, labor costs have climbed steadily across the restaurant industry. Labor cost represents the percentage of your revenue dedicated to staff expenses - typically ranging from 25-35% of total revenue. Most restaurant owners obsess over food costs while overlooking this equally critical expense.
What exactly is labor cost?
Labor cost encompasses every penny you spend on staffing:
- Gross salaries (including vacation pay, 13th month)
- Employer contributions (social premiums, pension premium)
- Temp agency costs
- Freelance chefs and service staff
- Training costs
Your own salary as an entrepreneur counts here too, even though you're drawing it from profits.
💡 Example:
Restaurant with €50,000 monthly revenue:
- Chef: €3,500 gross + contributions = €4,550
- 2 kitchen staff: €5,200 + contributions = €6,760
- 3 service (part-time): €4,800 + contributions = €6,240
- Owner salary: €4,000
Total labor cost: €21,550 = 43.1% of revenue
Why labor cost matters so much
Labor cost ranks as your second-largest expense after purchasing. Here's the typical breakdown we see repeatedly in restaurant financials:
- Food cost: 28-35% of revenue
- Labor cost: 25-35% of revenue
- Other costs: 25-30% of revenue
- Profit: 5-15% of revenue
A 5 percentage point jump in labor cost (from 30% to 35%) can wipe out your entire profit margin. That's why tight control matters.
⚠️ Watch out:
Many entrepreneurs forget employer contributions. These add roughly 30% on top of gross salary. A €3,000 gross salary actually costs you €3,900 monthly.
How do you calculate labor cost percentage?
The formula's straightforward:
Labor cost % = (Total staff costs / Revenue excl. VAT) × 100
💡 Example calculation:
Month of March:
- Revenue: €65,000 incl. VAT
- Revenue excl. VAT: €65,000 / 1.09 = €59,633
- Total staff costs: €18,500
Labor cost: (€18,500 / €59,633) × 100 = 31.0%
What are healthy percentages?
Labor cost percentages shift based on your establishment type:
- Fine dining: 35-45% (extensive staff, intensive service)
- Casual dining: 28-35% (standard service)
- Fast casual: 25-32% (limited service)
- Delivery/takeout: 20-28% (minimal service)
- Café with food: 25-35% (depends on service level)
Running above these ranges? You're likely bleeding money or lack cushion for unexpected expenses.
Where things typically go wrong
Common labor cost pitfalls:
- No planning: scheduling by gut feeling instead of projected revenue
- Ignoring overtime: regular overtime inflates costs by 20-30%
- Poor staffing: too many bodies during slow periods
- Zero flexibility: only fixed contracts, no on-call staff for rushes
💡 Real-world example:
Pizzeria schedules 3 people daily, even slow Mondays:
- Monday revenue: €800
- Staff costs: €420 (3 × €140 per shift)
- Labor cost: 52.5% - dangerously high!
With 2 people on Monday: 35% labor cost
Labor cost vs. food cost: finding the balance
These cost categories influence each other directly. High food costs limit your staffing budget. Excessive labor costs force ingredient compromises.
The sweet spot for most restaurants:
- Food cost + labor cost combined: 60-65% of revenue
- This leaves 35-40% for rent, utilities, equipment and profit
Food cost calculators help you monitor both expenses, revealing exactly where your budget flows.
How do you get control of your labor cost? (step by step)
Calculate your actual labor cost
Add up all staff costs: gross salaries, employer contributions, temp agency costs and your own salary. Divide this by your revenue excl. VAT and multiply by 100 for the percentage.
Analyze by day and shift
Look at which days and shifts are too expensive. Compare your staff costs per day with your revenue that day. Days above 40% labor cost are problematic.
Create a flexible schedule
Schedule based on expected revenue, not by feel. Have a mix of permanent staff and on-call workers for busy periods. Check weekly if your planning matches your actual revenue.
✨ Pro tip
Track your labor cost by individual shift, not just daily totals. The 2-5 PM shift often runs 15-20% higher than evening service because you're overstaffed for slower afternoon periods.
Calculate this yourself?
In the KitchenNmbrs app you can do this in just a few clicks. 7 days free, no credit card.
Was this article helpful?
Frequently asked questions
Should I include my own salary in labor cost?
Absolutely. Your owner salary counts toward labor cost, even though it comes from profits. Calculate it based on market rates for your role - this gives you accurate cost visibility.
What if my labor cost exceeds 35%?
You're likely losing money or lack buffer for unexpected expenses. Review your scheduling efficiency, consider task consolidation, or adjust menu prices to cover the higher costs.
How do I handle employer contributions in calculations?
Employer contributions add roughly 30% on top of gross wages. This includes social premiums, pension contributions and other mandatory payments. Always factor these into your total labor costs.
Is labor cost more critical than food cost?
Both deserve equal attention. Food costs are easier to adjust through suppliers or portions, but labor often represents your largest expense after purchasing.
How frequently should I review labor costs?
Check scheduled versus actual hours weekly. Run full labor cost percentage analysis monthly to catch problems before they spiral.
What's the biggest mistake with part-time scheduling?
Treating part-timers like full-time staff with guaranteed hours. Use flexible scheduling that matches actual demand patterns, not wishful thinking about consistent business.
Should seasonal restaurants calculate labor cost differently?
Yes, calculate labor costs based on active months only. Don't dilute your percentages by including closed periods - this masks real operational costs during service months.
📚 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.
Calculate your break-even point in seconds
Food cost is just one part of the story. KitchenNmbrs also helps you structure labor costs and other expenses for a complete break-even overview. Start free.
Start free trial →