Labor is typically the largest single expense in a restaurant, and it is the one most operators have the most control over -- yet it is also the one that most consistently runs above benchmark. Here is a clear-eyed look at what the numbers should be and how to get there.
What the benchmark is
The National Restaurant Association's industry benchmarks show that total labor cost -- wages, payroll taxes, and benefits -- should run 28 to 35 percent of total revenue for most independent full-service restaurants. Quick-service concepts typically run 25 to 30 percent because of simpler service models and lower wage rates for counter staff.
Total labor cost includes everything: hourly wages, salaried managers, payroll taxes (FICA, FUTA, SUTA), workers' compensation insurance, and any benefits (health insurance, paid time off). Many operators track only hourly wages and miss the full picture -- payroll taxes and workers' comp typically add 10 to 15 percent on top of gross wages.
The Bureau of Labor Statistics Employment Cost Index tracks wage growth in the food service industry. Since 2021, restaurant wages have grown significantly faster than historical averages due to labor market tightness, minimum wage increases in many states, and competition from other industries for entry-level workers. Operators who built their financial models on pre-2021 labor cost assumptions are often running 3 to 5 percentage points above their target.
Why labor cost gets out of control
The most common cause is scheduling by habit rather than by sales forecast. A restaurant that schedules the same number of staff every Friday regardless of whether it is a holiday weekend or a slow February Friday is leaving money on the table -- or burning it, depending on which direction the variance goes.
The second most common cause is manager labor that is not tracked separately. If your managers are salaried and their cost is buried in a general and administrative line rather than in labor, your labor percentage looks artificially low and you cannot see the true cost of your management structure.
Overtime is a third common driver. Overtime in restaurants is often a scheduling failure -- a predictable result of not having enough staff to cover shifts without individual employees crossing 40 hours. The fix is usually adding part-time staff to cover peak hours rather than relying on full-time employees for overtime.
The scheduling approach that works
The operators who consistently run labor at or below benchmark build their schedules from a sales forecast, not from a template. The process: forecast next week's sales by day and daypart based on the prior year's actuals and any known factors (holidays, events, weather). Calculate the labor hours needed to cover those sales at your target labor percentage. Build the schedule to hit that hour target, then adjust for specific operational needs.
This is not complicated, but it requires discipline. Most scheduling software -- Toast, 7shifts, HotSchedules -- can automate the forecast and show you your projected labor percentage before you post the schedule. If you are not using this feature, you are scheduling blind.
When labor cost is a structural problem
Sometimes labor cost is not a scheduling problem -- it is a structural one. A full-service restaurant in a market where minimum wage is $15 per hour, with a service model that requires one server per four tables, has a fundamentally different labor cost floor than a restaurant in a lower-wage market with a more efficient service model. If your labor cost is above 38 percent and you have already optimized your scheduling, the problem may be that your service model and your revenue per labor hour are mismatched.
The labor cost diagnostic article covers the specific root causes -- overscheduling, overtime drift, role confusion, and turnover cost -- and the fixes for each. The article on labor cost out of control covers the specific diagnostic steps for identifying whether your labor problem is operational or structural -- and what to do in each case. If labor cost is part of a broader financial distress picture, the prime cost article shows how food and labor together determine whether your restaurant can ever be profitable at its current revenue level.