How to Calculate Restaurant Labour Cost Percentage

The P&L arrives too late. By the time you see the labour cost number for last month, the hours are worked, the wages are paid, and there's nothing to do about it except feel bad. The number that matters — the one you can actually act on — is the one you calculate before the week starts, and again mid-week.

This is the operating version: what counts as labour, what the targets should look like, and what to check when the number comes in higher than expected.

What actually counts.

Gross labour cost includes hourly wages, salaried management, statutory contributions (CPP, EI, WSIB/WCB), vacation accrual (4% in most provinces, 6% after 5 years in some), benefits, and overtime premiums. The premium matters more than most people think — a single employee working 8 overtime hours effectively adds 12 equivalent regular-rate hours to your payroll.

Tips don't count as labour cost. They pass through. Owner draws aren't labour either — they come out of profit.

The formula.

Labour percentage = gross labour ÷ net revenue × 100. Net revenue is sales minus tax. For a quick weekly read, take last week's gross payroll, add roughly 18 to 22 percent for statutory costs and benefits, divide by weekly sales, and multiply by 100.

Worked example: $30,000 in net weekly revenue, $9,000 gross payroll, 20% loading. Fully-loaded labour = $9,000 × 1.20 = $10,800. Labour percentage = $10,800 ÷ $30,000 = 36%. For most restaurant concepts, that's high.

Where Canadian restaurants should land.

These vary by concept, obviously. But here are the ranges I see work consistently:

If your concept's target is 28% and you ran 36% last week, that's 8 points over. At $30,000 revenue, that's $2,400 of extra cost in a single week. A month of that wipes out your margin entirely.

Track weekly and daily — they tell different stories.

The weekly number tells you if the schedule worked — did the week come in where you expected? The daily number tells you if the manager on duty made good calls hour by hour. Both matter, but they serve different purposes.

A good rhythm: review the weekly target every Monday morning when you're building the upcoming schedule. Review the daily target by the closing manager before locking up. A daily labour check doesn't need fancy software — a notebook, the day's sales, and the scheduled hours at average wage gets you 90% of the truth. The point is knowing before you wake up the next morning, not after the payroll cycle closes.

When you're over target — five levers to pull before cutting hours.

You'd be surprised how rarely "cut everyone's hours" is the right first move. Try these in order:

Coverage misalignment. This is the most common cause of over-target labour. You staffed Tuesday afternoon for a 60-cover lunch and got 38. Look at sales-per-labour-hour by daypart — there's usually one or two pockets where you're consistently over-staffed. Trim those first before touching anything else.

Kitchen prep timing. If the kitchen's finishing prep an hour before the floor actually needs them, that's paid labour with no revenue attached. Push prep start back by 30 minutes and see if service still runs smoothly. Often it does.

Overtime creep. One employee running 8 overtime hours adds 12 hours of equivalent regular-rate cost. If the same person accumulates overtime more than once a month, that's a structural issue with their scheduled hours, not a one-off. Fix the schedule, not the overtime approval.

Wage drift. Annual raises compounding. A team that drifted from an average $17 to $19 an hour without a corresponding menu price increase will see labour cost rise by about 12% on its own — with no change in coverage at all.

Last lever: cut hours. If the first four don't close the gap, look at Monday and Tuesday off-peak shifts first. Cutting Friday or Saturday hours usually shows up in service quality, which costs you more in lost revenue than you save in payroll.

A real example.

Fifty-seat casual restaurant in Halifax. $42,000 net revenue per week. $14,500 gross payroll. 19% loading. Fully-loaded labour: $14,500 × 1.19 = $17,255. Labour percentage: $17,255 ÷ $42,000 = 41%. Target was 30%. Gap: 11 points, or $4,620 per week — over $20,000 per month.

Looking at daily breakdowns: Tuesday and Wednesday lunch are running 48% labour (over-staffed for off-peak). Friday and Saturday dinners are at 26% (lean — actually running well). Kitchen schedule starts at 11 AM for a noon lunch service.

Trimming one Tuesday lunch FOH and pushing kitchen start by 45 minutes recovers about $1,800 per week. The remaining gap is structural — too many salaried managers for the revenue base. That's a hiring decision, not a scheduling fix.

The takeaway: The weekly number tells you if the schedule worked. The daily breakdown tells you where to fix it. Use both, and the schedule becomes an operating tool instead of a payroll surprise.