Labour cost percentages guide [+calculator]

Labour costs are one of your biggest expenses as a business. This calculator helps you quickly work out your labour cost percentage — and shows you how to reduce it.

What are labour costs?

Labour costs are the expenses associated with staffing. On top of wages, labour costs can cover NIC and other employer contributions, training or onboarding, and any benefits.

What are labour cost percentages?

Labour cost percentages compare your total labour cost to your revenue to help you understand exactly how much of your income is being spent on staffing.

How do you calculate it?

To calculate labour percentages, you need two figures covering the same time period: your business's total revenue/sales, and labour costs.

Labour costs should include salaries, wages, and ideally any other payroll costs such as National Insurance and pension contributions. Whatever you include in calculations, keep it consistent — otherwise, you won't be able to compare different periods.

Total sales should be self-explanatory. Use data that's as accurate as possible, perhaps from your EPOS (electronic point-of-sale) system.

Use our calculator to calculate your labour cost percentage, then see how to reduce it.

How?

• Spot any overspending
• Benchmark performance
• Improve profitability

See how to reduce your labour costs here!

What does this mean?

20–25% = good

25–30% = most common

30%+ = risk

You can reduce your labour costs, remove manual calculations, and know if you're on- or over-target before it happens... all with smarter scheduling.

Start your free trial with RotaCloud to try it yourself and start reducing labour costs today OR–

Book a demo with one of our product specialists to see it in action.

"We used to spend about £10K a year on agency staff. Last year, we had a £720 bill." – Adam Hutchison, Managing Director of Belmount Healthcare

What's next?

Below, no matter your labour percentage score, we go into how to fix it – or, if you're doing well, maintain it!

3 quick ways to reduce labour costs

• Reduce overstaffing with better forecasts
• Track real vs scheduled hours
• Avoid last-minute overtime

RotaCloud automates all of this.

Cut labour costs with RotaCloud

RotaCloud's real-time budgeting tools make it easy to see how much you're spending on staffing — before sending the rota out. Try it free for 30 days and see how much you could save.

Learn more

How to use labour percentages

Some quick FAQs

Planning with labour percentages

Now that you know your labour cost percentage, it's time to put it to work. There are two main ways to do this:

1. To help with rota planning
2. To review your team/business performance

Once you've set a target labour percentage (based on historic or baseline figures), you can use it to help build your rotas. You can now work out a labour cost budget that's based on expected sales.

Here's how to do it:

1. Take your target labour percentage.
2. Add your sales data for each period (whether it's a month, week, or day).
3. Multiply the two figures to get a total labour budget for that period.

For example, if you're targeting a labour percentage of 30% and expect £20,000 in sales during a specific week, that week's labour budget will be 30% multiplied by 20,000, which is £6000.

4. Next, take off the salary costs for that week. (These will remain stable throughout the year.)

In the example above, you might have four salaried staff whose total weekly costs come to £2,500. That leaves you £3,500 of labour budget left to spend on hourly staff.

Now things start to get a little fiddly.

5. Work out your minimum staffing requirements for each day
6. Take that cost off the budget — leaving you with a much smaller figure to play with!

Now, you can assign this budget to the roles and hours where extra staff are needed (your peak times).

Tips for smarter planning with labour percentages

When using labour percentages for planning, remember what they don't show — as well as what they do show.

Labour percentages don't show you how labour costs break down between roles. Your percentage could be spot on, but you might have neglected to schedule a chef for Friday lunchtime!

Plus, if you're tinkering with the rota to try to meet your target, be sure you're cutting hours from roles that can spare them, not just cutting hours from the more expensive roles and employees.

If you're using labour percentages for planning, your sales estimates need to be reasonably accurate for the metric to actually mean anything. So, instead of just using last year's data, make adjustments based on more recent performances, menu changes, any booked reservations, and any events. If you're expecting higher than usual takings, you'll need more staff on the rota, too.

How can you measure performance with labour cost percentages?

Chain businesses tend to use labour percentage as a KPI — and even if you're not part of a chain, you can still use it in the same way.

Once each day, week, or month has passed, it's good practice to plug actual sales and labour data (from your EPOS system and timesheets) into your spreadsheet or other software to see how your plans stacked up to reality.

• Did you overestimate labour costs? Why/why not?
• Were sales better than expected? Why/why not?
• Did you meet your labour percentage target? Why/why not?

Reviewing these outcomes promptly will let you build your next rota with more confidence that your labour percentages are accurate and reliable.

Any big differences between expected and actual labour percentages should be looked at closely — they might point to periods of poor service, or a raft of no-shows — and may even suggest an underlying weakness in your business model that needs addressing quickly.

The longer you collect and keep data for, the more powerful your labour percentage can be as a KPI. Once you have months and years of data, you can create an average labour percentage to aim for, and compare performance on the same day or week across different years.

If you have multiple sites that have similar business models, you can (and should) compare labour percentages across them. Again, this'll help you plan future rotas, catch problems at specific sites, and identify top-performing sites.

How can software help manage labour costs?

Lowering labour costs doesn't mean cutting back on staff. There are ways you can reduce labour costs without firing anyone.

Labour cost tracking in workforce management software helps you plan, track, and optimise your staffing in one place. Instead of relying on spreadsheets, you can:

• Build rotas based on demand
• Track labour costs as you schedule
• Compare scheduled vs actual hours
• Reduce overtime and overstaffing

Tools like RotaCloud make it easier to stay on top of labour costs while saving time on admin, giving you more control over your business.

See how simple labour costs are in RotaCloud

In RotaCloud, you have perfect labour cost visibility.

You can automatically calculate labour costs and percentages as you adjust your rota. Calculations are performed in real time, meaning that managers can experiment with a variety of scenarios and shift patterns and have a better idea of how they will affect labour spending.

It’s easy to do:

Step 1: Enter your estimated revenue & target labour percentages

Navigate to the correct week and location, then enter the weekly estimated revenue in the box on the left. Alternatively, enter daily revenue estimates.

Add your target labour percentages, too.

Step 2: Copy data across future periods

If you like, you can use the Copy menu to apply the same percentages and/or estimated revenue to future weeks or months.

Step 3: View labour cost estimates on the rota as you build it

Head to the Rotas page to see cost estimates on the rota. Add, edit, or remove shifts to see how the changes affect labour costs vs estimated revenue to help you keep costs under control and stay on target.

Step 4: Add actual revenue to your rota to review the week

Once the day or week has passed, enter the actual revenue figures on the rota to see the final labour percentage for that period.

Done!

Read next ➤

How to reduce labour costs (without firing anyone)

When times get tough, staffing costs are one of the first areas to fall under the spotlight. But laying people off isn't always the answer. It could actually do more harm than good...

Learn more

What's a good labour cost percentage?

A good labour cost percentage typically ranges from 20% to 30% of revenue, though this varies by industry. Hospitality businesses often aim for 25–35%, while retail may be slightly lower.

If your labour costs consistently exceed your industry benchmark, it could mean overstaffing, inefficient scheduling, or too much overtime. Monitoring this regularly helps you stay profitable and make better staffing decisions.

What's the labour cost formula?

The labour cost formula is simple:

Labour percentage = (Total labour costs ÷ total sales) × 100

For example, if your annual revenue is £750,000, and you've spent £210,000 on labour:

Labour percentage = (£210,000 ÷ £750,000) x 100

Labour percentage = (0.28) x 100 = 28%

Looking at historical data gives you a reliable baseline that you can use to plan for the future.

Ideally, you'll calculate an annual figure, monthly/weekly figures, and even figures for each day. Where possible, look into the reasons behind any obvious spikes or troughs, and make a note of any roving occasions like Mother's Day or Easter.

How can you reduce labour costs?

You can reduce labour costs by improving how you schedule and manage your team by:

• Avoiding overstaffing during quiet periods
• Reducing unnecessary overtime
• Matching staffing levels to demand
• Tracking scheduled vs hours worked

Using workforce management software like RotaCloud can help automate this process, giving you better visibility and control over your labour costs without cutting corners on service.

What affects labour costs the most?

Several factors can have a major impact on labour costs, including:

• Staff scheduling and shift planning
• Overtime and last-minute changes
• Seasonal demand fluctuations
• Employee availability and absences
• Wage increases and compliance requirements

Even small scheduling inefficiencies can quickly add up. That’s why many businesses use tools to track labour costs in real-time, letting them adjust staffing levels accordingly.

Is labour cost the same as payroll?

Not exactly. Payroll is the total amount you pay your employees, including wages, salaries, bonuses, and taxes.

Labour cost is a broader measure that includes payroll and additional expenses, like employer contributions, benefits, and (sometimes) training or onboarding costs.

How often should you calculate labour costs?

It’s best to calculate your labour costs regularly, ideally weekly or monthly, to help you spot trends early and make adjustments before costs get out of hand.

Many businesses track labour costs in real time using scheduling software, so they can see how changes to rotas, shifts, or demand impact profitability before they've even happened.

Why is it important to track labour costs?

Labour is one of the biggest expenses for most businesses, so keeping it under control is key to staying profitable.

By tracking labour costs, you can:

• Identify overspending
• Improve scheduling efficiency
• Make informed staffing decisions
• Protect your profit margins

Without regular tracking, those costs can easily creep up unnoticed (especially with overtime or last-minute changes).

What percentage should labour costs be in a restaurant?

The percentage of restaurant sales spent on labour tends to be anywhere from 20–40%, depending on the type of restaurant you manage — so understanding how and where these costs arise could be the key to staying competitive.

Many restaurants use the above figure to help match planned shifts to expected takings, and also to review the health of the business.

Editor's Note: This post was originally published in February 2023 and has been updated for accuracy in January 2025, May 2025, and April 2026.