How to Calculate True Labor Cost % for a Café or Restaurant (Including On-Costs)
27 October 2026 · The Rosterly team · 6 min read
Most cafés and restaurants work out labor cost the quick way: add up the wages on the roster and divide by sales. It's a useful number, but it isn't your true labor cost. Weekend and public holiday rates, the employer taxes and contributions on top of wages, insurance and the leave your permanent staff are building up all add to what each shift really costs. On a typical week they can add several percentage points, which is often the difference between a good week and a loss.
This post shows how to calculate **true labor cost %** for a café or restaurant, what to include in the US, UK and Australia, and a worked example you can copy.
Quick answer
True labor cost % = (wages + penalties and overtime + on-costs + leave provision) ÷ net sales × 100
Use the same period for both figures, usually a week.
Use net sales: after discounts and refunds, excluding sales tax or GST. For the basic formula and a free calculator, see our guide to calculating labor cost percentage.
Hospitality is unusually exposed to the gap between rostered wages and real cost:
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Weekend and public holiday rates. In many awards and agreements, Saturdays, Sundays, public holidays and late nights cost more per hour than weekdays. Your busiest trading days are often your most expensive hours.
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Lots of casual and part-time staff. Each person brings on-costs, and casual loadings, leave entitlements and contributions vary by employment type.
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Split shifts and broken days. Two services a day can mean more paid hours than the covers really need.
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Thin margins. When profit is a few cents in the dollar, a labor cost that is three or four points higher than you think matters.
Step 1: Start with the wages on your roster
Add up the hours each person is rostered (or actually worked, from timesheets) multiplied by their ordinary hourly rate. Use actual clocked hours if you have them; rostered hours are a forecast, timesheets are the truth.
Remember to include salaried managers and chefs who work in the business. Their wages are labor cost too, even if they don't appear on the hourly roster.
Step 2: Add penalty rates, loadings and overtime
Next, add everything paid above ordinary rates in the period:
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weekend, public holiday, evening and late-night penalty rates
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casual loadings (in Australia, casual employees usually receive a loading instead of paid leave)
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overtime hours paid at overtime rates
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allowances (for example uniforms or split shifts, where they apply)
The rates depend on your award, enterprise agreement, contracts or local law. In Australia, the Fair Work Ombudsman publishes pay guides for each award. Your payroll software calculates these; the important thing is to include them in your labor cost, not just the base rate.
Step 3: Add employer on-costs
On-costs are what you pay as an employer on top of wages. The main ones, checked on official sites on 17 October 2026:
Country
Main employer on-cost
Rate
United States
Main employer on-cost: Social Security and Medicare (employer share)
Rate: 6.2% + 1.45% = 7.65% of wages, with Social Security up to the annual wage base (IRS)
United Kingdom
Main employer on-cost: Employer Class 1 National Insurance, 2026–27
Rate: 15% of earnings above £5,000 a year (GOV.UK)
Australia
Main employer on-cost: Superannuation guarantee
Rate: 12% of ordinary time earnings from 1 July 2025 (ATO)
Then add the smaller items that apply to you:
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Workers' compensation insurance: a premium usually set as a percentage of wages, varying by state, industry and claims history.
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Pension contributions in the UK: employers must contribute to a workplace pension for eligible staff under auto-enrolment.
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Unemployment insurance in the US: federal and state unemployment taxes apply on part of each employee's wages.
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Payroll tax: in Australia, state payroll tax applies above a wages threshold, which many small cafés stay below.
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Tips in the US: employer Social Security and Medicare also apply to tips employees report, so check how your payroll provider handles them.
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Allowances in the UK: the Employment Allowance may reduce what you pay in employer National Insurance if you're eligible.
These rates change, so check the official sources and your accountant at the start of each tax year.
Step 4: Add a leave provision for permanent staff
Permanent (full-time and part-time) staff build up paid leave as they work. You pay for it later, but it's a cost of this week's roster. In Australia, for example, full-time and part-time employees are entitled to four weeks of paid annual leave a year, which is roughly 7.7% of ordinary hours worked (4 ÷ 52).
A simple way to account for it: multiply the ordinary wages of your permanent staff by your leave accrual rate and add it to the week's labor cost. Casual staff who receive a loading instead of paid leave don't need a leave provision.
Worked example: one week in a café
Here is a week in a café in Australia. The figures are illustrative assumptions to show the method; use your own payroll numbers.
Item
How it's worked out
Amount
Net sales
How it's worked out: Week's takings, excluding GST
Amount: A$18,000
Ordinary wages
How it's worked out: Rostered hours × ordinary rates
Amount: A$4,500
Weekend and public holiday penalties
How it's worked out: Assumed for the example
Amount: A$700
Total wages
How it's worked out: 4,500 + 700
Amount: A$5,200
Superannuation
How it's worked out: 12% of A$5,200 (assuming all are ordinary hours)
Amount: A$624
Workers' compensation
How it's worked out: Assumed 1.5% of wages
Amount: A$78
Leave provision
How it's worked out: A$1,500 of permanent staff wages × 7.69%
Amount: A$115
True labor cost
How it's worked out: 5,200 + 624 + 78 + 115
Amount: A$6,017
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Wages-only labor cost %: 4,500 ÷ 18,000 = 25.0%
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True labor cost %: 6,017 ÷ 18,000 = 33.4%
The same roster that looks like 25% is really costing a third of sales. Penalty rates alone added nearly four points, and on-costs and leave added another four and a half.
Step 5: Compare against a benchmark you can trust
For restaurants, industry guides commonly cite 25–35% of sales as a typical labor cost range, lower for quick service and higher for full-service and fine dining. Most of those guides count total labor cost, not just base wages. So compare your true figure, not the wages-only one, against any benchmark.
The most useful benchmark is still your own: the same calculation, the same way, every week. A rising trend tells you more than any industry average.
A second number worth tracking: sales per labor hour
Labor cost % moves with your wage rates and your sales. Sales per labor hour (SPLH) shows how well the roster matches demand:
Sales per labor hour (SPLH) = net sales ÷ total hours worked
If the café above sold A$18,000 with 170 hours worked, SPLH is about A$106. Work it out by daypart (breakfast, lunch, afternoon) and you'll see which hours are over-rostered. A quiet 2pm–3pm with three people on is where labor cost usually leaks.
How to bring true labor cost down without hurting service
1.
Roster to demand by daypart. Use SPLH to trim hours where sales are thin, and add them where you're losing sales to queues.
2.
Plan the expensive days deliberately. Put your most experienced people on penalty-rate days so fewer staff cover the same trade.
3.
Watch the edges of the day. Early starts before the first customer and long closes after the last are hours that sales don't cover.
4.
Record breaks properly. Unrecorded unpaid breaks become paid time.
5.
Check the week before you publish it. It's far cheaper to cut an hour on Thursday's draft roster than to explain a bad week afterwards.
Rosterly shows an estimate of base wages for the week as you build the roster, checks skills before anyone is assigned and removes unpaid breaks from paid time. It doesn't calculate penalty rates, awards or overtime; those stay with your payroll provider. See how it works for cafés and restaurants, or, if you want labor targets set from POS sales, how Rosterly compares with 7shifts.
Try it on your own numbers
Open the free labor cost percentage calculator and enter one real week: sales, wages including penalties, and your on-cost rate. Then compare the result with the wages-only figure you usually look at. The gap is your hidden labor cost.