How to Reduce Restaurant Labor Costs Without Killing Service

Labor costs are one of the biggest control levers that restaurant operators have when it comes to costs. 

Restaurants and the hospitality sector need to reduce labor costs without killing the quality of service. It’s a juggling act that every restaurant struggles with. 

In this article, we’ll give you the formulas, a 10-minute staffing audit, and a scheduling playbook. 

Reduce restaurant labor costs (6-step fast plan)

1. Set a labor target per shift (based on forecast)
2. Staff to stations + volume, not habit
3. Control overtime with triggers
4. Track SPLH/CPLH daily
5. Reduce rework (prep, resets, mistakes)
6. Use flexible labor to cover spikes without overhiring

Let’s start with the formulas, because these serve as your forecast model. 

Labor cost calculator: Copy & Paste

Here are the formulas you need, with benchmarks below:

• Labor % = Total labor cost ÷ Total sales
• Target labor dollars (shift) = Forecast sales × target labor %
• Allowed labor hours = Target labor dollars ÷ Avg loaded hourly rate
• SPLH (Sales Per Labor Hour) = Total sales ÷ Total labor hours 
• Prime cost = COGS (Cost of Goods Sold) + Labor. This is a fantastic combined lever. (Source: Restaurant365)

(Source: Black Box Intelligence)

Benchmark framing

• The reality of labor costs for restaurants: Labor (wages + benefits), the median is 36.5% of sales (full-service), and 31.7% (limited-service) (As of 2024. Source: NRA).
• Many operators aim for ranges like 25–35%, depending on your operating model, as a general guardrail. (Source: WebstaurantStore)
• Daily targets vary by forecast and the time of day/how busy a restaurant is. 

How can you keep these costs under control and within an acceptable benchmark forecast for your restaurant?

We’ve got a daily and weekly labor cost control routine that you can run every time you’re doing planning. 

Daily + Weekly Labor Control Routine

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Daily routine (10 minutes)

• Pre-shift: Forecast + Staffing target hours
• Mid-shift: Check SPLH; cut/add based on triggers
• Close of shift: Note variances (why labor missed, either over or under target)

Weekly routine (30 minutes)

• Review: Overtime by person, busiest hour staffing, sales vs hours by daypart
• Decide: Cross-training priority, schedule templates, “must-staff” stations
• Set next week's targets: SPLH goal by shift segments 

Know when to cut staff (triggers)

• Sales running 15% below forecast by X time (pick a key busy or quiet period in your average shift) → send 1 runner home
• Overtime risk by Thursday → Swap shifts OR Add flex coverage

Now, let’s look at our practical advice in more detail, if you need more information on how to implement a specific step. 

Analyze Your Current Labor Costs

Before making changes, you need a clear understanding of your current labor expenses. 

To calculate average labor cost, use the formulas above, and aim for labor costs between 36.5% of sales (full-service), and 31.7% (limited-service).

If your labor costs exceed this range, it’s time to take action. Start by breaking down labor costs by position and shift to identify areas of inefficiency. Look at:

• Labor by daypart: Morning (if applicable), lunch, and early dinner shift vs. close. 
• Overtime + training hours: How much time is being used for both, on average? 
• Rework cost drivers, like prep waste, ticket mistakes, and resets.

Fine-Tune Your Employee Schedule

One of the most effective ways to reduce restaurant labor costs is through better scheduling.

Restaurant employee scheduling tools can help you align staffing levels with demand. Analyze sales data from previous weeks and months to identify peak and slow periods. Use this data to schedule more staff during busy times and scale back during quieter days. 

Avoid a one-size-fits-all approach to scheduling. Consider factors like employee strengths and preferences to create efficient and balanced shifts. 

Another tip: implement a flexible scheduling policy. Encourage employees to share availability and preferences, which can reduce last-minute absences and unnecessary overtime.

Cross-Train Staff

Cross-training employees is a highly effective strategy for reducing labor costs while increasing operational flexibility. 

When staff members can handle multiple roles (like bartending, waiting, runner, and other FOH roles; and do the same for the BOH), you can adjust shifts dynamically to meet changing needs. 

Cross-training also boosts morale by offering employees opportunities to learn new skills and advance their careers. This investment in your team keeps them lean and adaptable and avoids the need to hire additional staff.

Monitor Real-Time Performance

Tracking real-time labor performance is crucial for staying within your budget. 

Consider using a POS system with integrated labor tracking features to monitor labor costs as a percentage of sales. This allows you to make immediate adjustments if costs exceed expectations.

Implement Incentives for Productivity

Employee incentives are a win-win strategy: they encourage staff to work more efficiently while helping you control costs. 

Offer bonuses for meeting weekly labor cost goals or hitting sales targets. For example, set a target for servers to upsell certain menu items. This increases revenue without adding additional labor costs.

Optimize Prep Work

Inefficient prep work is a hidden labor cost that adds up quickly. Analyze your kitchen’s prep routines to identify areas for improvement. 

For example: Do staff spend time prepping ingredients that frequently go to waste? 

Are certain tasks taking longer than necessary due to outdated tools or processes?

Try to streamline prep tasks by using pre-portioned ingredients, automate repetitive tasks where possible, and schedule prep work during non-peak hours. 

Leverage Gig Workers for Flexibility

During periods of fluctuating demand, hospitality-centric gig platforms – like shiftNOW – can help you stay within your labor budget. Gig workers provide the flexibility to handle demand spikes without committing to full-time hires or paying overtime.

Bring in gig workers to cover shifts during a busy weekend and scale your workforce as needed. This approach allows you to trial run workers over a few shifts before hiring full-time and reduces the risk of turnover.

Sign up for shiftNOW today and experience hassle-free staffing for your hospitality business.

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Reduce Restaurant Labor Costs: Key Takeaways 

As operators, you can reduce labor costs, and you can do this without killing the quality and efficiency of the service provided. There are lots of ways to do this, as we’ve covered in this article. 

Make good use of the formulas and benchmarks provided. 

How to Reduce Restaurant Labor Costs Frequently Asked Questions (FAQs)

What is a good restaurant labor cost percentage?

According to industry benchmarks, most full-service restaurants should target a labor cost percentage between 30% and 35% of total revenue.

Quick-service and fast-casual concepts can often operate closer to 25% to 30% due to leaner staffing models and lower wage tiers. However, the right number for your operation depends heavily on your concept, service model, average check size, and local wage environment. 

How do I calculate labor cost per shift?

Here are the formulas you need:

• Labor % = Total labor cost ÷ Total sales
• Target labor dollars (shift) = Forecast sales × target labor %
• Allowed labor hours = Target labor dollars ÷ Avg loaded hourly rate
• SPLH (Sales Per Labor Hour) = Total sales ÷ Total labor hours 
• Prime cost = COGS (Cost of Goods Sold) + Labor. This is a fantastic combined lever. (Source: Restaurant365)

What's a good SPLH, and how do I use it?

Sales Per Labour Hour (SPLH) measures how much revenue your operation generates for every hour of labour scheduled. Top-performing full-service restaurants typically target an SPLH of $35 to $50 or higher, depending on concept and market. 

To calculate your SPLH, divide your total sales for a given period by the total number of labour hours worked during that same window. 

For example, a lunch shift that generates $3,500 in sales across 70 labour hours, for instance, yields an SPLH of $50. 

How do I reduce overtime without understaffing?

The most effective way to reduce overtime is to make it visible before it happens rather than managing it on a timesheet after the fact. Most scheduling platforms will flag employees approaching their 40-hour threshold in real time. 

Cross-training staff across multiple stations or roles gives you the scheduling flexibility to redistribute hours across a wider headcount.

On-demand staffing platforms like shiftNOW can also serve as a practical pressure valve here. Bringing in a flex worker for a busy shift is often cheaper than paying time-and-a-half to a full-time employee who is already near their weekly limit.

What metrics should I track weekly?

The best metrics to track are the following: 

• Labor % = Total labor cost ÷ Total sales
• Target labor dollars (shift) = Forecast sales × target labor %
• Allowed labor hours = Target labor dollars ÷ Avg loaded hourly rate
• SPLH (Sales Per Labor Hour) = Total sales ÷ Total labor hours 

Prime cost = COGS (Cost of Goods Sold) + Labor.