What Your Team Is Really Costing You (Beyond Wages)
Ask most independent restaurant owners what their labour cost is, and they'll tell you it's around 28–33% of sales. That figure comes from their POS or payroll report: total wages divided by total revenue.
It's the right formula. It's just measuring the wrong thing.
The 28–33% captures hourly wages and salaries. It doesn't capture what you actually spend to have those people working in your restaurant. And for a single-location independent — where margins run at 3–5% according to Restaurants Canada's Foodservice Facts 2025 — the difference between what you track and what you spend is not a rounding error.
Here's how the full number builds.
What's in a Wage?
When you hire someone at $18/hr, you're committing to more than $18 per hour. You're committing to $18 in gross wages plus every mandatory employer contribution that comes with it.
In Canada, those contributions include:
| Cost Item | Approximate Rate | What It Is |
|---|---|---|
| CPP (Canada Pension Plan) | 5.95% of pensionable earnings | Employee retirement contributions |
| EI (Employment Insurance) | 1.4× employee contribution (~2.32%) | Unemployment benefits |
| Vacation pay (minimum) | 4% of gross earnings | 2 weeks, required by law |
| Statutory holiday pay | ~3–4% of gross earnings | 9–13 statutory days depending on province |
| Workers' Compensation (WCB/WSIB) | 1–3% depending on province | Workplace injury coverage |
Total payroll burden: roughly 15–20% above gross wages.
The exact percentage varies by province. In Quebec, employers also pay RQAP (parental insurance at 0.60%), the FSS (Health Services Fund at 2.50%), and RRQ instead of CPP. The CRA and provincial revenue agencies publish the current rates each January.
The practical takeaway: if your payroll report shows $240,000 in wages for the year, you're spending something closer to $276,000–$288,000 once you include all mandatory employer costs. That $36,000–$48,000 difference is real money leaving your account every month.
Better guest experience. Bigger nights. $299. Once.
How Much Does Each Departure Actually Cost?
Labour cost is a number you track continuously. Turnover cost is a number most operators have never calculated once.
The restaurant industry has some of the highest turnover in any sector. In 2025, the average turnover rate across North American restaurants topped 75%, with front-of-house at roughly 41% and back-of-house at 43% annually, according to 7shifts. For independent restaurants, especially those with heavy seasonal hiring and student-age staff, the real number is often higher.
Every departure has a cost. Most of it never shows up on a report:
There are the direct costs: your time or a manager's time spent posting a listing, screening candidates, running interviews, and doing reference checks. The cost of the listing itself. Sometimes an agency fee.
Then training costs: new hires in a kitchen typically take two to four weeks to reach full productivity. During that ramp period, waste goes up, plate times slow down, and an experienced team member spends part of every shift supervising instead of executing.
And transition costs: the nights you're understaffed, the tables you can't turn, the quality dip your regulars notice before the new person finds their rhythm.
Studies estimate that replacing one front-line restaurant employee costs between $3,000 and $5,000 once all those factors are included, as cited by Dwyer Hospitality. For a manager, the number climbs to $15,000 or more.
A 35-seat restaurant with 12 part-time employees and 75% annual turnover sees roughly 9 departures a year. At $3,500 per departure: $31,500 in turnover costs that appear nowhere in a standard P&L.
The Employee You Never Count: Yourself
There's one more labour cost that most independent restaurant owners never calculate: their own time.
How many hours a week do you work in your restaurant? For most owner-operators of single-location independents, the honest answer is somewhere between 50 and 70. Much of it is on the floor, in the kitchen, or handling situations that only the owner can handle.
If you valued your own hours at $25/hr and worked 60 hours a week over 50 weeks, that's $75,000 in labour that doesn't appear in your cost structure at all. It doesn't inflate your labour cost percentage. It just quietly disappears.
This isn't an argument to pay yourself more starting tomorrow. It's an argument that your reported labour cost percentage is likely understated, not overstated. And that matters when you're making decisions about pricing, hours, or whether a slow Tuesday is actually a problem.
What This Looks Like for a 30-Seat Independent in Ontario
A 30-seat restaurant in a mid-sized Ontario city, $600,000 in annual revenue, standard full-service model. Reported wages: $168,000 (28% of sales). On paper, well within the acceptable range.
Here's what the fuller picture looks like:
| Cost Item | Annual Amount |
|---|---|
| Gross wages (payroll report) | $168,000 |
| Mandatory payroll contributions (~17%) | $28,560 |
| Turnover costs (~7 departures × $3,500) | $24,500 |
| Owner labour (est. 55 hrs/week, 50 weeks at $25/hr) | $68,750 |
| Full labour cost (excl. owner) | $221,060 |
| Full labour cost (incl. owner estimate) | $289,810 |
Without counting owner time, true labour cost is 36.8% of sales, not 28%. Including a fair estimate for owner time, it's closer to 48%.
At 3–5% net margins, the restaurant in this example earns $18,000–$30,000 annually. The gap between reported and actual labour cost is larger than the profit.
What You Can Actually Do About It
The goal isn't to feel worse about a hard business. It's to see clearly, because clear data leads to better decisions.
Start with the payroll burden. Your payroll provider (whether that's ADP, Payworks, or a bookkeeper) generates remittance reports that include employer contributions. Pull the total for the last quarter, divide by gross wages, and you'll have your actual burden rate. Add that to your labour cost tracking going forward.
Track every departure. You don't need an HR system. A note in a spreadsheet: who left, what role, roughly how many hours it took to replace them. After a year, multiply by $3,000 and you'll have a reasonable baseline for your turnover cost.
Clock yourself for two weeks. Not to guilt yourself into working less. Just to know. The number has a way of clarifying which decisions are actually worth your time.
Understanding what your team truly costs is one half of the prime cost equation: the metric that tells you more about your restaurant's financial health than any other single number. If you want to see how your food cost fits into that picture, our food waste calculator can help you quantify the other side of the equation.
Sources: Restaurants Canada, Foodservice Facts 2025, Canada Revenue Agency, CPP contribution rates 2026, 7shifts, True Cost of Employee Turnover, Dwyer Hospitality, Cost of Restaurant Employee Turnover, Government of Canada, EI Premium Rates.
Frequently Asked Questions
What is the real labour cost for a Canadian restaurant?
Most operators track 28–33% of sales. The real cost, including mandatory payroll contributions (CPP, EI, vacation pay, workers' comp), turnover costs, and owner labour, is typically 35–50% of sales. The gap between the two numbers often exceeds annual net profit.
What does the payroll burden include for Canadian restaurant employers?
The payroll burden includes CPP (~5.95%), EI (~2.32% employer rate), vacation pay (minimum 4%), statutory holiday pay (~3–4%), and workers' compensation insurance (1–3% depending on province). Total: roughly 15–20% above gross wages paid.
How much does employee turnover cost in a restaurant?
Replacing one hourly front-line restaurant employee costs between $3,000 and $5,000, covering recruitment, training, and lost productivity. For a manager, the cost rises to $15,000 or more. A restaurant with 75% annual turnover among 12 staff absorbs roughly $31,500 in turnover costs per year.
Why should restaurant owners count their own hours as a labour cost?
Most independent owners work 50–70 hours per week without recording their own time as a cost. At $25/hr over 50 weeks, that's $62,500–$87,500 in labour that doesn't appear in the cost structure, causing reported labour cost percentage to be significantly understated.
How do I calculate the true labour cost for my restaurant?
Add mandatory payroll contributions (about 17% above gross wages) to your reported labour cost. Then estimate annual turnover costs (number of departures × $3,500). If you track owner hours, add those at a fair market rate. The result will be 35–50% higher than your standard payroll report.