Labor is one of the largest expenses restaurant operators manage, and even small increases can put pressure on margins. As operators balance wages, staffing needs, and guest expectations, understanding what drives labor costs is the first step toward managing them.
David Maloni, ArrowStream economist, noted that, “the cost of hourly labor for the industry has risen annually somewhere near 7 percent for the last five years or so. And the last three years this has outpaced sales growth, causing the cost of labor as a percentage of sales to rise despite record menu price increases. Even more so than food, labor costs are difficult to combat. But make no mistake, the industry is doing so by adopting technology for their operations and supply chains.”
What’s Driving Rising Restaurant Labor Costs?
A higher hourly wage is only part of the story. Labor costs can climb when restaurants need more time to hire, train, and retain employees. When a position stays open, the rest of the team may work overtime to cover it. When someone leaves, a manager has to spend time hiring and bringing a replacement up to speed. The National Restaurant Association continues to identify turnover and understaffing as meaningful costs for operators.
Sales also affect the number operators watch most closely. A restaurant could spend the same amount on labor two weeks in a row, but if traffic drops in the second week, labor takes up a larger share of sales. Across a chain, that can look different from one location to the next. A busy store may need extra coverage to keep service moving, while a slower store may have scheduled more hours than its sales can support.
Then there’s the work behind the scenes. Managers still have to handle ordering, resolve delivery issues, and follow up on pricing discrepancies. Those tasks take time away from running the restaurant. For chain operators, better supply chain visibility can help teams spend less time chasing answers and more time where they’re needed.
How to Calculate Restaurant Labor Cost Percentage
Restaurant labor cost percentage shows how much of your sales goes toward paying your team. To calculate it, divide your labor costs for a given period by sales for that same period, then multiply by 100:
Labor cost percentage = (Total labor costs ÷ Total sales) × 100
For example, if a restaurant spends $30,000 on labor and brings in $100,000 in sales during the month, its labor cost percentage is 30%.
Start with wages and salaries, including overtime. Depending on how your business tracks labor, you may also include employer payroll taxes and benefits. The key is to use the same definition each time you calculate the figure. If one location includes benefits and another doesn’t, the comparison won’t tell you much.
Look at the percentage alongside sales, hours worked, and service levels. A rising percentage might point to overtime or scheduling that needs attention. It might also reflect a slower sales week. For restaurant chains, reviewing the numbers by location can show where the pressure is coming from before you decide what to change.
How Supply Chain Technology Helps Offset Rising Labor Costs
Rising labor costs aren’t only a concern for restaurant operators, they’re also a concern for the restaurant industry’s supply chain.
The chart below shows that wholesale food price inflation has not helped much to offset the rising labor costs. Thus, the building importance of technology in the foodservice supply chain.
ArrowStream’s supply chain technology can be instrumental as part of a strategy to offset the rise of labor costs. By using our platform, restaurant chain operators can reduce overall food spend, identify price discrepancies, consolidate suppliers or identify new partners for cost savings, anticipate food prices from market changes, and recover credits from quality issues.
Frequently Asked Questions
What is a good labor cost percentage for a restaurant?
Around 30% of sales is a useful starting target for limited-service restaurants; full-service concepts may need to plan for the mid-30s. In the National Restaurant Association’s 2024 data, restaurants reporting a pretax profit had median labor costs of 30.0% and 34.2% of sales, respectively. Those figures aren’t universal goals, but they give chain operators a benchmark to compare with similar locations while watching service and profitability.
How do you calculate labor cost percentage?
Divide total labor costs by sales for the same period, then multiply by 100. If labor costs are $30,000 and sales are $100,000, your labor cost percentage is 30%.
Why are restaurant labor costs rising?
Wages, overtime, benefits, and employee turnover can all increase labor spend. A slower sales period can also push labor cost percentage higher, even when payroll stays the same.
How to reduce restaurant labor costs without cutting staff?
Start by checking overtime, scheduling patterns, and time spent on repetitive tasks. Giving managers faster access to purchasing and delivery information can free up time without reducing coverage during service.
What is the average labor cost for a restaurant?
It depends on the service model. In its 2025 Restaurant Operations Data Abstract, The National Restaurant Association reported labor costs of 36.5% of sales for a typical full-service restaurant and 31.7% for a limited-service restaurant. Use those figures as context, then compare locations with similar operations.
How does technology help reduce restaurant labor costs?
Technology can take manual work off the team’s plate. ArrowStream gives chain operators one place to review supply chain data, investigate pricing issues, and track supplier performance, so managers spend less time chasing information.
How do rising labor costs affect the foodservice supply chain?
Manufacturers and distributors face labor pressures, too. When their costs rise or staffing gets tight, restaurant chains may feel the effects in pricing and service, making visibility into supplier performance and contract pricing more valuable.
