Labor cost percentage and sales per labor hour (SPLH)

What goes into total labor cost:

• hourly wages, front and back of house
• salaries for managers and chefs
• overtime and bonuses
• the employer’s payroll taxes
• health insurance, workers’ comp and other benefits

Tips paid out to staff are the guests’ money and usually stay out. If you work a station or run shifts yourself, include what it would cost to pay someone to do it, or your labor cost will look better than it really is.

SPLH doesn’t move when wages change, so it is a cleaner way to compare shifts, days and seasons. It also tells you what each hour of labor needs to bring in to hit your labor target:

At a $20 average wage (with payroll taxes) and a 25% target, each labor hour needs to bring in $80 of sales.

At 33%, this example restaurant is inside the common 30–35% target for full-service. But a weekly number can hide expensive hours. That is where an hourly check helps.

It’s a quiet evening hour with $700 in sales. Ten people are on shift (six front, four back) at an average of $20 an hour including payroll taxes, and one is on overtime.

Sending one person home early saves $20 an hour, or $80 over the last four hours of the shift. It’s a guide, not a rule: keep enough people to serve guests well and handle a late rush.

Common targets are 25–30% of sales for quick-service and 30–35% for full-service restaurants. In practice many run higher: National Restaurant Association data put the 2024 median at 36.5% for full-service and 31.7% for limited-service restaurants.

Labor and food work together, so watch them as prime cost. A scratch kitchen may spend more on labor and less on food. A place with high food cost can still do well with a lean team.

Under federal law (the Fair Labor Standards Act), covered employees must get at least time and a half for hours over 40 in a workweek. Some states have stricter rules, such as daily overtime, so check yours.

Overtime raises the cost of every hour it touches by half. Check hours mid-week, not when payroll runs, so you can move shifts before anyone tips over 40.

• Schedule to forecast sales by hour, using last year’s and last month’s POS data, not the same roster every day.
• Stagger start and finish times so people arrive for the rush and leave as it ends.
• Cross-train so one person can cover two quiet stations.
• Watch overtime daily.
• Cut prep time with prep lists sized to forecast sales.
• Keep good staff. Every new hire costs training time and slower service. The staff retention checklist lists what helps.
• Check tip credit rules if you pay tipped staff a cash wage below minimum wage; the tip credit simulator shows how they work.