How labor cost works
Your labor cost isn't just the hourly wage. On top of every dollar of wages you pay Social Security and Medicare (7.65%), federal unemployment, state unemployment, and usually workers' compensation. You also owe the employer share of Social Security and Medicare on the tips your staff report.
wages = people × hours × hourly wage taxes = wages × employer tax rate + reported tips × 7.65% labor cost % = (wages + taxes) ÷ salesWhat's a good labor cost %?
A common rule of thumb for full-service restaurants is roughly 25% to 35% of sales, and bars often run lower. Watch it next to food and drink cost: together they make your "prime cost," which many owners try to keep under about 60% to 65%.
About the tax presets
7.65% is the employer share of Social Security and Medicare. Federal unemployment is 0.6% on the first $7,000 a worker earns each year, so it matters most early in the year. State unemployment rates vary by state and by your history; 2.7% is a common new-employer rate. Workers' comp depends on your state and your payroll class. Your payroll provider or accountant has your real rates.
Ohio wages in 2026
Ohio's minimum wage is $11.00 an hour and the tipped cash wage is $5.50 in 2026 for larger employers, as long as tips bring the worker up to $11.00. Source: Ohio Department of Commerce. More in our Ohio tipped minimum wage guide. The federal tipped cash wage is $2.13.
Many restaurants can also claim a federal tax credit for the Social Security and Medicare they pay on tips (the FICA tip credit). This calculator doesn't subtract it; ask your accountant.
Questions owners ask
Should salaried managers be in here?
For a per-shift view, many owners leave salaries out and count them as a fixed cost. For a monthly labor %, include them. Just be consistent.
Do tips count as labor cost?
No. Tips belong to the staff. Only the employer taxes on reported tips are your cost, which is why that switch exists.