The payroll percentage is one of the most important financial indicators for restaurants in the United States, as it represents labor costs in relation to revenue. Maintaining a healthy payroll percentage is key to ensuring the business’s profitability and financial stability. Below is an analysis of the appropriate payroll percentage for different types of restaurants, along with tips on how to keep it at a healthy level.
1. What is the payroll percentage?
The payroll percentage refers to the proportion of the restaurant’s total revenue that is allocated to wages, benefits, and other labor costs. It is calculated using the following formula:Payroll Percentage

Frequently Asked Question:
Why aren’t government-related revenues (such as taxes) included in the payroll percentage calculation?
To calculate a restaurant’s payroll percentage, it’s more appropriate to base it on net sales, not total sales. This is because net sales exclude taxes and other costs that are not part of the restaurant’s operating income.
Reasons:
- Total Sales: Include all the revenue generated by the restaurant, including sales taxes.
- Net Sales: Represent the revenue after deducting sales taxes and other non-operating expenses.
Why use net sales for payroll percentage? The payroll percentage should reflect the relationship between labor costs and the real operating income of the business—i.e., the money available to cover operating expenses such as payroll, supplies, and other fixed or variable costs. Sales taxes are funds that go directly to the government and are not part of the income you can use to run your business, so they should not influence this calculation.
This percentage provides a more accurate representation of the real income being allocated to wages, allowing you to make better decisions regarding your business’s management.
2. Appropriate payroll percentage by type of business
The payroll percentage will always depend on how automated and efficient your business is. The more you invest in technology and processes, the more likely you are to lower your payroll percentage, even if your weekly sales are high.
- Food Trucks:
- Ideal Payroll Percentage: 18%-25%
- Rationale: Food trucks have fewer employees and lower operating costs, allowing for a lower payroll percentage. Efficiency is key since they operate with fewer staff.
- Fast Food:
- Ideal Payroll Percentage: 20%-30% (depending on automation level)
- Rationale: These businesses rely on speed and high customer turnover, which keeps the payroll percentage relatively low through efficient use of staff.
- Full-Service Restaurants:
- Ideal Payroll Percentage: 30%-35% (if not automated)
- Rationale: Full-service restaurants require more staff, from chefs to servers, leading to a higher payroll percentage. Personalized service increases labor costs.
- Restaurant with Bar:
- Ideal Payroll Percentage: 28%-33%
- Rationale: Restaurants with a bar need more staff to manage both dining and bar areas, but higher profit margins on alcoholic beverages help offset labor costs.
- Restaurant with Nightclub:
- Ideal Payroll Percentage: 35%-40%
- Rationale: Restaurants with nightclubs require more specialized staff, including security and entertainment personnel. While labor costs are higher, they manage higher profit margins.
- Combination of Restaurant and Bar/Nightclub:
- Ideal Payroll Percentage: 35%-40%
- Rationale: Managing both a restaurant and entertainment venue requires careful staffing to avoid compromising profitability, as both require different staffing needs.
3. Tips for maintaining a healthy payroll percentage:
- Automation and Technology: Use technology, such as scheduling and payroll management software, to track hours worked and avoid unnecessary overtime pay.
- Optimized Scheduling: Plan shifts carefully to ensure you have the right amount of staff during peak hours and minimize excess staff during slow periods.
- Cross-Training: Train employees to perform multiple roles across different areas of the restaurant, allowing you to reduce the number of staff needed during low-demand periods.
- Monitoring Productivity: Set clear metrics to measure employee performance and ensure that each team member is working efficiently. Adjust shifts according to productivity.
- Overtime Control: Overtime can quickly inflate payroll costs. Monitor extra hours worked and only approve overtime when absolutely necessary.
- Seasonal Staffing: Adjust the number of employees based on seasonal demand. Hiring temporary workers can help during peak seasons without impacting payroll during slower months.
- Identify Peak Sales Hours: Understand the busiest times in your restaurant to staff appropriately during peak traffic periods. This ensures you’re maximizing efficiency while maintaining optimal service levels.
4. Impact of not managing payroll percentage effectively:
- Profitability Loss: A high payroll percentage can significantly reduce profit margins, making it harder for the restaurant to remain profitable in the long run.
- Cash Flow Problems: If labor costs are not managed effectively, the restaurant’s cash flow can suffer, potentially requiring external financing to cover operating costs.
- Reduced Competitiveness: Restaurants with an uncontrolled payroll percentage may be forced to raise menu prices to cover high labor costs, making them less competitive.
- Employee Demotivation: If payroll adjustments are not handled properly, there may be cuts in hours or wages, which could demotivate the staff, affect service quality, and increase employee turnover.
Athoz is a powerful tool that helps restaurant owners manage and optimize their payroll percentage, ensuring efficient and profitable operations. Here’s how Athoz does it through its key functions:
1. Scheduling Management:
- Simple Scheduling: Athoz allows restaurant owners to easily create and adjust schedules.
- Payroll Cost Projection: Athoz provides a projection of total payroll costs by employee, area, and even by location. This helps owners see the financial impact before approving shifts.
- Efficient Distribution: Athoz helps identify the best staff distribution to avoid inefficiencies, improving workplace morale.
2. Time Tracking:
- Accurate Time Tracking: Athoz records the exact hours worked by each employee, preventing payroll errors and ensuring that only worked hours are paid. This helps prevent unnecessary overtime costs.
- Real-Time Monitoring: Managers can see who is working, who has finished their shift, and who is close to exceeding regular hours, allowing them to avoid unplanned overtime.
- Planned vs. Actual Comparison: Athoz compares scheduled hours with actual worked hours, optimizing control.
3. Detailed Payroll Reports:
- Weekly Payroll Reports: Athoz generates detailed weekly payroll percentage reports, helping restaurant owners monitor and adjust their staffing as needed.
- Real-Time Access: Reports and metrics are accessible from anywhere, offering full transparency and control.

Athoz’s Impact on Payroll Management:
- Time and Cost Savings: By automating scheduling, time tracking, and payroll reports, Athoz helps restaurant owners reduce labor costs, avoid costly errors, and keep payroll percentage in a healthy range.
- Transparency and Control: Owners have a clear view of labor costs, allowing for quick and effective staffing adjustments.
- Employee Well-Being: The transparency of payments fosters a sense of trust and well-being among employees.
In summary, Athoz empowers restaurant owners with advanced tools to control and optimize their payroll, ensuring a balance between operational efficiency and profitability.
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