Why Restaurant Labor Cost Is the Biggest Controllable Expense You Have

Most restaurants find out what a schedule cost after the week is over. By then, it’s too late to fix. This is unfortunate, since labor cost is the single largest controllable expense across every type of dining concept from fine dining to local coffee shops.

The National Restaurant Association’s 2025 Restaurant Operations Data Abstract, built on data from more than 900 restaurants, puts median full-service labor at 36.5% of sales. Against margins that run in the low single digits, three or four points of labor is the difference between a profitable week and a break-even one.

What “Fully Burdened” Labor Cost Actually Means

To use an example with dollars… One excess scheduled hour at $16/hour, with a typical 20% labor overhead for taxes and benefits, costs $19.20 fully burdened.

“Fully burdened” means the wage plus everything else it actually costs you to put that person on the clock. This includes payroll taxes like FICA and unemployment insurance, workers’ comp, and any benefits you offer.

In other words, a $16/hour wage rarely means $16/hour in real cost; a typical 20% overhead on top turns it into roughly $19.20. Schedule against the fully burdened rate, not the base wage, or your actual labor cost percentage will always come in higher than you planned.

Where does that 20% come from? The U.S. Bureau of Labor Statistics tracks this directly. In its March 2026 Employer Costs for Employee Compensation report, total benefit costs (legally required taxes like Social Security, Medicare, and unemployment insurance, plus insurance, retirement, and paid leave) for the accommodation and food services industry averaged 19.1% of total compensation, about $3.80 on top of $16.12 in average wages. Expressed as a markup on the wage itself, that works out to roughly 24%. It’s a national average, and workers’ comp and unemployment insurance rates both vary by state, so the real number for any specific restaurant can land higher or lower. Using a round 20% keeps this example on the conservative side.

Where a Restaurant’s Revenue Actually Goes

The pie chart below shows where a typical dollar of restaurant revenue actually goes, based on the same NRA data: labor takes 36.5%, food cost runs another 33%, all other costs (occupancy, utilities, supplies, G&A, card fees) add up to about 27.7%, and what’s left over as pre-tax profit is a median of just 2.8%. Labor is the only slice of that pie you can actively plan and adjust shift by shift, which is exactly why getting it right before you publish the schedule matters so much.

What One Excess Hour Costs You

On a day estimated to do $5,400 in sales, that single hour adds roughly a third of a percentage point to your labor cost percentage. Using the industry’s median 2.8% pre-tax profit margin, it quickly eats close to one-eighth of that day’s expected profit!

Multiply that one unneeded hour across a week of shifts, and the math explains why so many restaurants operate on the edge of breakeven!

How to Control Restaurant Labor Cost Before You Publish the Schedule

Now that you have a PhD in economics, let’s show you how easy it is to avoid unnecessary staffing costs.

The short (about 4 minutes) video link below will demonstrate the complete schedule cost planning workflow: setting pay rates, entering a daily sales plan, applying your labor overhead rate, and then adjusting a single day from 52.8% labor cost to sales down to 28.9%. You will have confidence your staffing costs are optimized before the schedule goes live to your staff. Schedule Cost Planning launched alongside five other new features built to help you run a tighter operation.

Restaurant labor cost doesn’t have to be a guessing game you only solve after the week is already over. With Schedule Cost Planning, you see the number before you publish instead of finding out after payroll runs. Log in to Schedules Made Simple on the web using the same credentials as your mobile app to try it today.

▶  Watch: How to plan and control your labor cost