Labour Cost Percentage: Wages, Burden and Revenue
Labour cost percentage divides fully loaded payroll by revenue for the same period. Loaded means wages plus employer taxes, insurance and benefits — usually 15-25% on top of gross pay, and the reason wage-only calculations understate the true cost of a team.
Building the numerator
- Gross wages and salaries for the period, including overtime.
- Employer payroll taxes and statutory contributions.
- Health cover, pension, insurance and paid leave accruals.
- Agency and contractor cost where it substitutes for employed labour.
Matching the period
The numerator and denominator must cover exactly the same dates. Payroll periods rarely line up with accounting months, so accrue the part-week rather than dropping or double-counting it — a mismatch of a few days can move the percentage by several points and send you chasing a variance that does not exist.
Reading the result
- Restaurants generally target 25-35% of sales; retail is nearer 10-20%.
- Professional services regularly exceed 50%, because labour is the product.
- Rising percentage with flat revenue means over-scheduling or wage inflation.
- Falling percentage is not automatically good — under-staffing shows up later as lost sales.
Prime cost
In hospitality, food cost and labour cost together form prime cost, and most operators manage that combined figure to 60-65% of sales. It absorbs the trade-off between buying prepped ingredients (higher food cost, lower labour) and preparing in house.
Key takeaways — Labor Cost Percentage Calculator
- Labour % = (wages + payroll burden) ÷ revenue × 100.
- Burden typically adds 15-25% to gross wages.
- Track prime cost, not labour alone, where food and labour trade off.