Quick answer: Restaurant labor cost usually runs 25-35% of revenue (full-service tends higher, QSR lower). The number swings with your state's minimum wage and whether it allows a tip credit — some states (like California) require full minimum wage for tipped staff, while others let you pay a lower cash wage plus tips. To calculate: total labor cost ÷ total revenue × 100. Aim to keep prime cost (labor + food) under ~60-65%.
Labor is one of your two biggest controllable costs (the other is food), and in 2026 it is the one under the most pressure from rising minimum wages. Here is how to measure it, what "good" looks like, and how the rules differ by state.
How do you calculate restaurant labor cost?
Labor cost is everything you pay staff — wages, salaries, payroll taxes, benefits, and overtime. The core metric is labor cost percentage:
Labor cost % = (total labor cost ÷ total revenue) × 100
If you spent $12,000 on labor in a month on $40,000 revenue, that is 30% — right in the healthy range. Track it weekly, not just monthly, so you can adjust scheduling before it drifts.
What is a good labor cost percentage?
| Type | Typical labor cost |
|---|---|
| Quick service (QSR) | ~25-30% |
| Fast casual | ~28-32% |
| Full-service | ~30-35% |
| Fine dining | ~35%+ |
Also watch prime cost (labor + food combined). Under ~60% is strong; over 65% and margins get thin fast. Pair this with our food cost calculator to see both halves.
How do minimum wage and tip credit vary by state?
This is what makes labor cost so location-dependent. The federal minimum is $7.25 with a $2.13 tipped minimum (tip credit), but many states set higher wages — and several ban the tip credit entirely, requiring full minimum wage before tips.
| State | Tip credit? |
|---|---|
| California, Washington, Oregon, Nevada, Minnesota, Alaska, Montana | No — full minimum wage for tipped staff |
| New York, Illinois, Florida, and many others | Yes — lower cash wage + tip credit (rules vary) |
| Federal default | $2.13 tipped minimum + tip credit |
Always check your current state and city rate — several cities set their own higher minimums. A POS that tracks tips and hours makes tip-credit compliance and reporting far easier; our tip calculator and tip-pooling calculator help with the math.
How do you reduce restaurant labor cost without hurting service?
- Schedule to demand — use sales data by hour to match staffing to covers, not habit.
- Cut overtime — it is the silent killer; watch approaching-40-hour staff.
- Cross-train so fewer people cover more roles on slow shifts.
- Reduce comps and re-fires — kitchen errors are labor cost you never see on the schedule.
- Use tech — QR/online ordering and a fast POS let the same team handle more covers.
Frequently asked questions
What is a good labor cost percentage for a restaurant? Most restaurants aim for 25-35% of revenue — QSR at the lower end, full-service and fine dining higher. Combined with food cost, keep prime cost under about 60-65%.
What is a tip credit? A tip credit lets employers in some states pay tipped staff a lower cash wage (as low as $2.13 federally) and count tips toward meeting minimum wage. Several states, including California, do not allow it and require full minimum wage plus tips.
How do I calculate labor cost percentage? Divide total labor cost (wages, taxes, benefits, overtime) by total revenue for the same period, then multiply by 100.