Labor Cost Calculator

Frequently asked questions

What does labor cost actually include?

Labor cost is more than just hourly wages. It includes base pay for all hours worked, overtime premium for hours above the weekly threshold (usually 40 hours, paid at 1.5x or more), and any shift differentials for nights or weekends. Some businesses also factor in employer taxes and benefits on top of gross wages, but this calculator focuses on the direct pay costs that show up on your payroll each period.

How do I calculate overtime correctly?

Most overtime rules use a weekly threshold, typically 40 hours in the US or 48 hours in the EU. Any hours above that threshold in a single week are paid at the overtime rate (usually 1.5x). For example, if an employee works 45 hours at €12/hour with a 1.5x overtime rate, the first 40 hours cost €480 and the 5 overtime hours cost €90, for a total of €570 instead of €540 at straight time.

How often should I calculate labor costs?

Most managers review labor costs weekly alongside the schedule. Calculating before you publish the schedule lets you catch overtime spikes before they happen. Reviewing after each pay period helps you compare planned versus actual costs and spot patterns — like certain shifts consistently running over budget.

What is a healthy labor cost percentage?

It varies significantly by industry. Restaurants typically target 25-35% of revenue. Retail tends to be 15-20%. Healthcare is often 50-60% due to specialised staff. The most useful benchmark is your own historical average — focus on trends over time rather than industry averages, which can mask very different business models.

How can I reduce labor costs without cutting staff?

The most effective levers are reducing unplanned overtime (better scheduling), reducing no-shows (availability management and confirmation systems), and matching staffing levels to actual demand (not overstaffing slow periods). Tracking labor costs weekly makes these patterns visible so you can act on them.