How to Manage Labour Costs in Hospitality | UK Guide

Key takeaways

• Labour is hospitality's largest and most controllable cost, so it pays to know what's really inside it.

• Track your labour cost percentage against sales. Around 30% of sales is a commonly cited benchmark for many restaurants, while hotels often operate at higher labour cost percentages because of their broader staffing requirements.

• UK wage bills are rising. The National Living Wage is going up to £12.71 from April 2026, so plan your rotas around demand.

• Deputy helps you allocate, track, and review labour costs by site and cost centre.

What counts as a labour cost in hospitality

When you run a hospitality business, labour is usually your largest expense. Managing labour costs in hospitality starts with knowing what actually sits inside that number, because it's far more than the wages on a payslip. Get the full picture and you can budget with confidence and protect your margins.

A labour cost includes all the direct and indirect costs of employing your staff. When you add up every part, you can see the true cost of each shift and each site.

Direct and indirect labour costs

Direct labour costs cover the wages, benefits, and paid holiday for the people who produce the goods and services you sell. Think of your chefs, baristas, and front-of-house team.

Indirect labour costs are the other staffing costs that support your direct team but don't produce your product. A security guard is a common example. Each cost may look small on its own, but they add up across a full workforce.

Don't forget on-costs: National Insurance, pensions, and holiday pay

Employing staff involves more than their hourly pay. You also carry a range of on-costs tied to each hire, and these give you a more honest view of total labour cost.

In the UK, your main on-costs include:

• Employers National Insurance contributions on staff pay.

• Pension contributions through auto-enrolment.

• Holiday pay, which accrues as your team works.

Deputy lets you apply configured on-cost percentages to your wage costs, helping your labour cost estimates better reflect the total employment costs you plan around.

How to calculate your labour cost percentage

Once you know what's in your labour cost, the next step is to measure it against sales. Your labour cost percentage shows how much of your revenue goes toward staffing and is one of the most useful metrics for monitoring labour costs over time.

The labour cost percentage formula

The formula is straightforward. Here's how to work it out:

1. Add up your total labour cost for the period, including wages and on-costs.

2. Find your total sales for the same period. Use net sales, so the figure excludes VAT.

3. Divide labour cost by sales, then multiply by 100.

For a worked example, say a cafe spends £4,000 on labour in a week and takes £16,000 in net sales. That's £4,000 divided by £16,000, multiplied by 100, which gives a labour cost percentage of 25%.

What's a healthy labour cost percentage for hospitality

There's no single right number, because it varies by format. As a guide, many restaurants aim for a labour cost of around 30% of sales, while hotels often sit at 40% or more thanks to their wider range of roles.

Use these benchmarks as a starting point, then track your own wages-to-sales ratio over time with time tracking software. What matters most is the trend for your sites, not a headline figure.

Why labour costs in hospitality are rising

UK hospitality operators face steady upward pressure on wage bills, and it helps to know what's driving it so you can plan ahead.

The National Living Wage is rising to £12.71 from April 2026. That's a direct increase to your wage bill that you can't avoid, alongside higher Employers National Insurance. Pay has climbed across the sector too, with average hourly hospitality pay up roughly £3 an hour since 2022, according to Deputy's UK Big Shift Report.

The workforce is changing as well. The same report found that Gen Z made up 63% of UK hospitality shift workers in 2025, up from 58% in 2024. A younger, entry-level team shifts your training needs and your approach to retention. The report also notes the Employment Rights Act is introducing new expectations around predictable working hours, which affects how you plan rotas.

Allocate labour costs to the right cost centre with Deputy

Budgeting for labour is easier when you can see exactly where each cost lands. Deputy gives you three ways to allocate salaried staff costs to the right cost centre, so your reporting reflects how your business really runs. Let's walk through each one.

Allocate salary costs across fixed days of the week

With this option, you allocate salaried staff costs to a cost centre for fixed days of the week. It works best when your staff tend to work the same days week to week.

For example, Hannah leads a customer service team and works a 40-hour week, Monday to Friday. By choosing days-of-the-week allocation, her wage costs are portioned equally across those five days.

When you enter sales revenue in Deputy, you can then review labour efficiency using the wages-to-sales ratio.

Split salary costs across scheduled areas

The Scheduled Hours to Scheduled Areas option spreads salary costs according to where you place your staff on the rota. It suits team members who work across several areas of your business. For it to work well, you'll need to place your staff in the right areas.

In this example, Evan is scheduled with the admin team for 24.5 hours and the customer service team for 13.5 hours. With this option enabled, his salary cost is allocated across both cost centres, at 24.5/38 and 13.5/38 respectively. That gives you a truer labour cost per cost centre, so you can review performance with more confidence.

Assign salary costs to a specific cost centre

The Scheduled Hours to Selected Areas option is best when your staff work in several areas but you need their cost assigned to one place. With it enabled, wage costs are apportioned by scheduled hours and allocated to the cost centre you specify.

For example, Naveed usually works in customer service but spends this week closing deals himself. Wherever he works, his salary cost stays with the customer service cost centre, helping provide a more accurate view of labour costs.

Track labour cost against sales in real time

Allocation shows you where costs sit. Tracking labour cost against sales as the day unfolds shows you whether you're on budget right now. When you connect your point-of-sale takings to Deputy, you can monitor your wages-to-sales ratio as sales and labour information update throughout the day.

That live view helps you make smarter calls on the rota. If sales are quieter than forecast, you can adjust hours before the cost lands rather than finding out at month end.

Deputy helps us with projecting where sales will be and where we should allocate labour to accommodate that. With this operational efficiency, we can use as much of our human intelligence to do things that humans really need to do as opposed to just manual things that software can do.

Ariana Korman, Chief Operating Officer at Juice Press

How to reduce labour costs without hurting service

Cutting labour cost isn't about cutting corners. The goal is to match your staffing to what the business needs, so you protect service and your margin at the same time. Here are three tactics that work.

Roster to match demand

Over-rostering burns money on quiet shifts, and under-rostering leaves guests waiting. Build your rota around forecast demand, using past sales and footfall, so you have the right people on at the right times.

Cross-train staff and play to their strengths

When team members can cover more than one role, you can flex your rota without calling in extra hands. Cross-training also plays to individual strengths, which keeps service sharp and hours efficient.

Reduce turnover to cut rehiring costs

Every leaver carries a hidden cost in recruiting and training a replacement. Fair, predictable rotas help you keep good people, and steady staffing keeps your labour costs lower over time.

With using Deputy, I'm proud of myself for having reduced unnecessary hours and designed shifts such that we did away with between 15-20% of extra hours.

Hazel de los Reyes, Co-Founder and Store Manager at Gumption Coffee

Stay on top of scheduling and working-time requirements

Managing labour cost sits alongside your duties as an employer. The Employment Rights Act is introducing new expectations around predictable working hours, and holiday pay rules continue to apply to your team.

Deputy supports your compliance workflows by recording hours, surfacing rota information, and keeping timesheets in one place for manager review. It helps you keep working-time and holiday information organised for review, but the responsibility for meeting your legal obligations stays with you as the employer. For guidance on the rules themselves, refer to gov.uk and Acas.

Take control of your hospitality labour costs

Labour is your biggest cost, and it's also one you can shape. When you know what's inside your labour cost, measure it against sales, and plan your rotas around real demand, you give yourself room to grow without losing control of your margin.

Deputy brings allocation, real-time tracking, and rota planning together, so you can review costs by site and cost centre and act on what you see. Start a free trial or book a demo to see how it fits your business.

Frequently asked questions

What percentage of revenue should labour cost be in hospitality?

Many restaurants aim for a labour cost of around 30% of sales, while hotels often run at 40% or more. The right figure depends on your format, so track your own wages-to-sales ratio over time. Deputy helps you monitor that ratio by site and cost centre, so you can spot changes early.

What is included in hospitality labour costs?

Hospitality labour costs include staff wages plus on-costs such as Employers National Insurance, pension contributions, and holiday pay. Together these show the true cost of employing your team. Deputy helps you track these costs and apply configured on-cost percentages, so your reporting reflects what you actually spend.

How does Deputy help control labour costs in hospitality?

Deputy helps you control labour costs by allocating them to the right cost centre, tracking wages against sales, and helping you plan rotas around demand. You can review efficiency across days, areas, and sites. That visibility makes it easier to keep staffing in line with what the business needs.

How can I track labour costs across multiple sites?

You can track labour costs across multiple sites in Deputy using cost centres and real-time wages-to-sales visibility. Each site and department reports separately, so you can compare performance and act on it. This gives multi-site operators one clear view of where labour cost sits.