Labor Cost Math: Start With Dollars, Then Percentages

If a week produces $10,000 in net sales and labor costs $3,000, labor cost is 30%. Divide the cost by sales, then multiply by 100: 3,000 ÷ 10,000 × 100 = 30%. For every $100 sold, $30 pays for the labor included in that number.

Decide what the labor number contains

Gross wages are not the same as take-home pay, and they are not the full employer cost. Start with hourly wages, required overtime and salaries. Add employer payroll taxes, workers’ compensation and benefits or other labor costs you actually bear. Keep the definition consistent between plan and actual results.

Employee tax withholding comes out of gross pay; do not add it again as another employer wage expense. Employer taxes are different. IRS Publication 15 lists 2026 employer Social Security at 6.2% up to its wage base and Medicare at 1.45%. That is not a complete burden estimate: unemployment, insurance, leave, benefits and other costs can apply.

One employee, one week

For a nonexempt employee with one $20 hourly rate and 45 worked hours, using the federal weekly overtime rule:

• 40 regular hours × $20 = $800.
• 5 overtime hours × $30 = $150.
• Gross wages = $950.
• A fictional 15% employer-cost allowance adds $142.50, producing $1,092.50.

The U.S. Department of Labor generally requires 1.5 times the regular rate after 40 hours in a workweek for covered nonexempt employees. State rules, multiple rates, bonuses and tip credits can change the calculation. A salary or manager title does not by itself settle exemption.

Combine employees after calculating their hours

Two employees each working 30 hours do not create 20 overtime hours because the role total is 60. One employee working 45 hours does create an overtime question. Calculate at the employee level, then total the restaurant.

Use the shift and labor planner. Rows represent paid working segments; split unpaid meals and overnight shifts correctly. Include receiving, prep, cleaning and closing. Review hours-worked rules; do not remove compensable time to meet a target.

Why the percentage rises when sales fall

$3,000 labor on $10,000 sales is 30%. The same labor on $8,000 sales is 37.5%. Payroll did not increase; the sales denominator fell. Before cutting a shift, find whether the cause is weak demand, a quiet service period, unnecessary overlap or a process requiring too much work.

If your chosen labor target is 30%, $3,000 of labor needs $3,000 ÷ 0.30 = $10,000 sales. The target is an assumption to test, not a universal staffing rule.

Practice before making a decision

What is $4,500 labor on $15,000 sales? First 4,500 ÷ 15,000 = 0.30, then ×100 = 30%. What sales support $4,500 labor at 25%? 4,500 ÷0.25 = $18,000. Try the free math lessons, then check a proposed wage in the hourly-pay budget tool.