How it works
Labor budget = expected sales × labor share
Cost per paid hour = average wage × (1 + payroll cost %)
Hours you can afford = labor budget ÷ cost per paid hour
Sales needed per paid hour = expected sales ÷ hours you can afford
Labor cost percentage is labor cost divided by sales. If you enter the hours you have scheduled, the calculator shows your labor share for that schedule and how far it is from your target.
A worked example
A gift shop expects $8,000 in sales next week and wants labor at 30%: a budget of $2,400. Staff average $15 an hour, and payroll taxes and workers’ comp add 10%, so each paid hour costs $16.50. The shop can afford 145.5 paid hours, about 3.6 full-time people.
Next week's schedule has 170 paid hours. That costs $2,805, a labor share of 35.1%, which is $405 over budget. Trimming about 24.5 hours, or raising sales to $9,350, gets it back to 30%.
Prefer to work it out yourself? Step-by-step guide: do this calculation by hand or in a spreadsheet.
Common mistakes
- Budgeting from your best week. A schedule built for a record week loses money in an ordinary one.
- Leaving out payroll taxes and workers' comp. The wage is only part of what each paid hour costs.
- Cutting hours during the busiest times. Trim the quiet hours first; lost sales cost more than the labor you save.
What this doesn’t tell you
This is arithmetic on your own sales forecast, not a staffing plan. It doesn't count the owner's own pay, overtime rules, minimum shift lengths, or the coverage a shop needs to open its doors. A good labor percentage depends on your business; this tool doesn't tell you what yours should be.
Related calculators
Go deeper: 15 Numbers Every Small Business Owner Should Know, from The Groundwork Review.
Anticipated Questions
What labor percentage should I aim for?
It depends on your margins and what you sell, so use your own books. Find last quarter's labor cost divided by sales, then check what share your gross margin can carry. Our break-even and profit margin calculators show where that line is.
Should I include my own pay?
Only if you work shifts you would otherwise pay someone to cover. Many owners track staff labor separately from owner pay.
Do I include payroll taxes?
Yes. Employer Social Security and Medicare are 7.65% of wages, and most employers also pay unemployment tax and workers' comp. The 10% default is a starting point; use your own figures.
How do I forecast sales for the week?
Use the same week last month or last year, adjusted for anything you know is different: a holiday, an event, road work. Take the lower number if you are unsure.
Opening or moving? See your odds with a Market Feasibility Study or Site Selection Analysis.
Sources
- BCcampus: Basic Kitchen and Food Service Management, The Basic Calculation of Operating Costs (labour cost percentage)
- IRS Publication 15 (Circular E), Employer's Tax Guide
- U.S. Small Business Administration: Manage your finances
Last reviewed October 19, 2026. How our calculators work. General information for planning, not legal, tax or financial advice. Found an error? Email info@groundworkbusinessadvisory.com.
