How to Calculate Labor Cost for Restaurant in Percentage

The restaurant's expenses rely on the number of restaurant staff, restaurant location, restaurant efficiency, and others. Whatever the thing is, restaurant owners need to calculate restaurant labor costs to ensure the restaurant's yearly expenses. It also ensures the staff's accurate salary in percentage. So how to calculate labor cost for restaurants in percentage? It is very simple, divide total labor cost with total restaurant sales into percentages then you will get the restaurant's total labor cost in percentages.

However, restaurant staff cost is considered the maximum percentage of expense. It ranges from 25 to 40% of the total expenses of a restaurant. Labor costs the rights of restaurant staff or some other companies. To ensure their rights and maintain exact salary labor cost calculation is most necessary. 

However, let’s go into depth and discuss elaborately how to calculate labor cost percentage and get the actual idea about restaurant staff cost that is most necessary at opening a restaurant.

What is Labor Cost in a Restaurant?

Restaurants pay the total salary and wages monthly basis to the restaurant staff which is called a restaurant labor cost. Labor cost is a monthly expense that includes salary, taxes, and other benefits. This cost includes payroll taxes for restaurant staff, overtime payments, part-time payments, and other benefits.

Occasionally bonuses are also included in a restaurant's expenses. Labor cost is calculated from the beginning stage of a restaurant. Therefore, a major amount is given to the restaurant employees. So, a restaurant manager or business owner should calculate labor cost for restaurants and be conscious of that.  

How to Calculate Labor Cost for Restaurants in Percentage?

In most cases, a staff cost is calculated yearly. To calculate restaurant staff salaries and wages, a restaurant manager should follow the labor cost calculation formula. 

Let’s see how to calculate labor cost for restaurants and use them in real life to minimize cost overflow and reserve employee rights. Most restaurants use this labor cost calculation formula to calculate restaurant staff cot. The restaurant labor cost calculation formula is:  

Restaurant labor cost in percentage = Total restaurant staff cost/Total restaurant sales * 100% (100 is a restaurant labor cost %)

Restaurant Labor Cost Calculation Formula with Example

For example, suppose you have earned around $2000000 in a year. You have already spent $500,000 on employee salary and wages. Now what would be the percentage of your restaurant staff?

Restaurant staff cost in percentage = Total restaurant sales 

Restaurant staff cost = ($500000)/Total restaurant sales ($2000000) * 100%

Restaurant labor cost in percentage = 0.25 * 100 = 25

So. Your restaurant labor cost would be 25% per year.

It is noted that this percentage of staff cost will be different along with restaurant revenue and staff salaries. Using this formula, you can calculate your business staff cost. If you have a retail business, coffee shop, casual dining, and other commercial dining restaurants then use this format and calculate yearly restaurant staff cost in percentage.

Tool to Calculate Restaurant Staff Cost

Is there any tool for calculating a restaurant staff cost? Yes, many tools are used to calculate a business staff's cost. Let’s see some of the best tools that are popular for calculating staff salary such as

Restora POS: Restora POS is a complete restaurant management software that offers extensive features like POS billing, inventory management, report generating, employee management and tracking, restaurant expense calculation, sales tracking, etc. Using Restora POS, a manager can calculate employee salary, attendance, activity, and others.

TouchBistro: It is a free restaurant staff calculation tool. It takes restaurant staff data (performance, arrival time, departure time, tracking working activity, etc.) from POS software. So, you may think about TouchBistro to calculate your staff cost in percentage.  

RotaCloud: This tool calculates labor costs automatically. Rota Cloud calculates calculated unpaid leave deductions as well. It was specially designed to track employee activity like attendance, leave, arrival time, departure time, etc.

However, instead of the restaurant POS software, many tools are used to calculate labor costs. Those tools are only for staff management of any project. So, choose the best tool and calculate the employee cost in percentage.

What Is A Good Labor Cost Percentage?

Labor costs include employee health insurance, paid time off, KPI, payroll taxes, bonuses, overtime pay, etc. Most companies provide salaries and wages by following their country's labor law policy. This percentage becomes different in various countries.

• In the United States, a good labor cost percentage is around 25 to 35%.
• In the United Kingdom, a good labor cost percentage is around 20 to 30%.
• The labor cost percentage is around 23% in Germany.
• The good labor cost percentage in Canada is between 25 to 35%.

Calculating Effective Labor Rate per Year

The labor rate represents the hourly wages of an employee that the company pays. So what should be the effective labor rate? The effective labor rate should be as high as possible. It may be near about 100%. However, how to calculate the labor rate? There is the easiest labor rate calculation formula.

Labor rate = employee total monthly salary/total time worked in a week

 Suppose an employee works 8 hours per day and 6 days a week. In that case, an employee can work up to 2496 hours in a year (one year = 52 weeks). If a person works 48 hours a week then 48 * 52 = 2496 hours in a year.

If the hourly payment rate becomes $20 then the yearly salary becomes 2496 hours * $20 = $49,920 per year.

If you want to count the weekly labor rate then 2496 hours/52 weeks = $960 per week.

So, this is a simple equation or formula to calculate the employee rate. Use this technique to calculate your business, company, or restaurant employee salary per year/month/day/hour.

Restaurant Labor Budget Template

Not only the restaurant, but most business industries follow a labor budget template. However, the restaurant labor budget template refers to two parts of restaurant employees: the back of house and front of house. The labor budget template includes:

• Employee Position.
• Number of Staff in Each Sector.
• Wages per Hour.
• Overtime (OT) Wage.
• Overtime (OT Hour) Wages.
• Total Cost.  

So, this is the restaurant labor cost template. Many restaurants do not use manual processes to calculate labor budgets. They use software format to calculate. It’s easy to manage, secure, reliable, authentic, and carries transparency. So, choose the best labor budgeting template and systematically manage your organization.

Benefits of Restaurant Labor Cost Calculation

Transparency is key to keeping employee minds fresh, increasing a restaurant's reputation, and achieving goals. However, we have brought here some common and essential benefits of employee cost calculation such as

1. Transparency: All the staff want transparent calculation. It means how long they will serve in a restaurant and that time counts on the right way. The cost calculation strategy gives an accurate idea of how much wage they will earn per hour, per day, and month as well.

2. Improve Restaurant Profit Margin: Cost calculation techniques can directly increase a restaurant's profit margin. Labor cost is an expense, this cost calculation technique will assist a restaurant owner in how much wages they have been giving to the employee. This strategy will reduce cost overflow.  

3. Employee Performance Evaluation: cost calculation is the right way to track and monitor a staff's work efficiency. It also helps to identify the working area of any specific employee. By using this strategy an employer easily knows which employee is getting more and a low amount also.   

4. Efficient Budget: Restaurants pay 25 to 40% of the employee cost of their revenue. This is a massive amount, in that case, accurate employee cost calculation will assist in finding the exact amount. Therefore, a restaurant owner can be aware of how much they should invest for the next year.

What Is The Labor Cost Per Meal?

A restaurant owner provides a specific amount of meals to the staff with a specific amount of money for a particular period like breakfast, lunch, and dinner which is called labor cost per meal. Most restaurants include this cost in their salary and a few other restaurant owners provide free meals. 

However, what the thing is, how to calculate labor cost per meal? There is an easiest formula to calculate labor cost per meal. You must divide the number of meals for a specific person by the number of paid labor hours of that person. 

Put the value then get the result about per meal labor cost. However, what is the normal labor cost in a restaurant? Although it depends on a restaurant's business policy, the normal labor cost in a restaurant is around 25% to 35% of a restaurant's total revenue. 

Can I Use The Cost Revenue Function Calculator To Calculate Revenue?

Yes, restaurant owners or managers can use a calculator to calculate a restaurant's revenue. A revenue calculator saves time, brings accuracy, and reduces effort. So, how to calculate or check revenue? Restaurant management software like Restora POS can show you the revenue specifically. 

Suppose you want to check how much revenue you have earned by online orders then check the opening balance closing balance and remaining balance then you will get the profit. This is a very simple process to calculate sales, and revenue by order and date. 

Most of the restaurant management system has that option. On the other hand, some essential calculators have been designed for calculation purposes like OrderUp, Over Easy Office, TouchBistro, and others. So, choose the best revenue function calculator and calculate revenue conveniently.

Can I calculate the Average Food Cost of a Restaurant?

Of course, a restaurant manager can calculate a restaurant's average food cost conveniently by following a food cost calculation formula in percentage. In that case, divide the total cost of goods sold (COGS) by total revenue in percentage.

So, Total food cost in percentage = total COGS/ Total revenue * 100

Now, put your value and get the result. So, calculate your restaurant's average food cost using this simple formula.  

How To Control A Restaurant Labor Cost?

Indeed, no one organization wants to pay higher labor costs. Most costs are spent on staff salary and wages. However, some essential ways can assist in controlling labor costs.

• Never recruit more staff than your needs.
• Monitor and track employees' activity.
• Minimize overtime strategy and try to manage your restaurant in a scheduling time.  
• Focus on your investment and profit and stick to it.

Final Thought

A business labor cost relies on the business owner's policy and a particular country's labor law. Most restaurants are likely to pay around 25 to 35% of employee costs from their total expenses. A restaurant owner should know about the exact or estimated labor cost. For this reason, we have shown here how to calculate restaurant labor costs, average food costs, and many more. Using these simple formulas, a manager or business owner can easily calculate their labor cost.