Labor cost percentage: how to calculate it
Labor cost percentage is total labor cost for a period divided by revenue for the same period, times 100. Total labor cost means gross wages plus the employer's payroll taxes and benefits, not wages alone. Example: $9,180 of labor cost on $34,000 of sales is 27.0%.
The formula
Labor cost % = (gross wages + employer payroll taxes + benefits) ÷ revenue × 100, using the same dates for both numbers. A week is the easiest period to use, because overtime under the FLSA is also calculated per workweek (how overtime is calculated).
What goes into total labor cost
| Item | Rate or rule | Source |
|---|---|---|
| Gross wages, including overtime | Overtime is at least 1.5× the regular rate for hours over 40 in a workweek | DOL Fact Sheet #23 |
| Employer Social Security tax | 6.2% of wages, up to a 2026 wage base of $184,500 | IRS Topic 751 |
| Employer Medicare tax | 1.45% of wages | IRS Topic 751 |
| Benefits and other employer costs | Whatever you actually pay: insurance, paid leave, state unemployment tax, workers' compensation | Your own invoices |
Wages alone understate the number. The Bureau of Labor Statistics reports that for private industry workers in June 2026, total employer compensation cost was $46.89 per hour worked: $32.82 (70.0%) in wages and salaries and $14.07 (30.0%) in benefits.
Example: one store, one week
- Gross wages from timesheets: $8,000.00
- Employer FICA: $8,000 × 7.65% = $612.00
- Other employer costs for the week (from invoices): $568.00
- Total labor cost: $8,000 + $612 + $568 = $9,180.00
- Sales for the same week: $34,000.00
- Labor cost %: $9,180 ÷ $34,000 × 100 = 27.0%
Example: three locations
Calculate each location separately before you add them up. The combined figure hides the store that is out of line.
| Location | Labor cost | Sales | Labor % |
|---|---|---|---|
| Store A | $9,180 | $34,000 | 27.0% |
| Store B | $6,300 | $18,000 | 35.0% |
| Store C | $5,520 | $24,000 | 23.0% |
| All stores | $21,000 | $76,000 | 27.6% |
At 27.6% overall, the business looks fine; Store B at 35.0% is 8 points above Store A. If an employee splits time between stores, assign their hours to the store where they worked, not to their home store (scheduling across locations).
What is a "good" labor cost percentage?
NOT FOUND in official sources. We did not find a federal or state agency that publishes a target labor percentage for retail stores, salons, cafés or auto shops, so this page gives no benchmark. Compare each location against its own previous weeks and against your other locations.
Two companion numbers
| Metric | Formula | Example |
|---|---|---|
| Sales per labor hour | Sales ÷ hours worked | $34,000 ÷ 400 hours = $85.00 |
| Labor cost per hour worked | Total labor cost ÷ hours worked | $9,180 ÷ 400 hours = $22.95 |
How overtime moves the percentage
Example: 10 overtime hours at a $16.00 regular rate cost 10 × $24.00 = $240.00, against $160.00 at straight time. The $80.00 difference adds 0.24 points to a week with $34,000 in sales ($80 ÷ $34,000 × 100). See how to reduce overtime across locations.
Weekly routine
- Export hours worked per employee per location for the workweek.
- Multiply by each pay rate; add overtime premium for hours over 40.
- Add 7.65% employer FICA and the week's share of other employer costs.
- Divide by that location's sales for the same dates.
- Record it next to last week's number for the same location.
Assistlify records clock in/out with breaks and exports attendance as CSV, which gives you step 1 without retyping timesheets.
This is general information, not legal advice. Check your state labor department for current rules.
This is general information, not legal advice. Check your state labor department for current rules.
Questions
How do you calculate labor cost percentage?
Divide total labor cost (gross wages plus employer payroll taxes and benefits) by revenue for the same period and multiply by 100. $9,180 ÷ $34,000 × 100 = 27.0%.
Do payroll taxes count in labor cost?
Yes. The employer pays 6.2% Social Security (up to $184,500 of wages in 2026) and 1.45% Medicare, per IRS Topic 751.
What share of compensation is benefits?
BLS reports benefits were $14.07 of $46.89 per hour worked, or 30.0%, for private industry workers in June 2026.
Should I calculate labor cost per store or for the whole business?
Per store first. In the example above, the business averages 27.6% while one store runs at 35.0%.
Sources
- US DOL WHD Fact Sheet #23: Overtime Pay Requirements of the FLSA (revised October 2019) (checked 2026-11-12)
- IRS Topic 751: Social Security and Medicare Withholding Rates (checked 2026-11-12)
- BLS Employer Costs for Employee Compensation, June 2026 release (published September 9, 2026) (checked 2026-11-12)