Calculating Payroll %

I’m having trouble getting a definate answer on this one…when we shoot for 22% or 28% or whatever on payroll; what is included?

1 - Net pay for employee + Employee withholding + Employer Tax

2 - Net pay for employee only

I don’t know if the taxes belong in the payroll percentage or a separate category.

ALSO - does the owner’s pay count towards that number? I’ve seen where your “owner profit” should be 20% but is that the same as owner salary? If so, then I wouldn’t count it as part of my payroll cost would I?

Thanks in advance!


Yes you should have trouble getting an answer on this issue as poeple do determine their labor % diffently…

I use simply gross payroll…(which does not include my companies payroll matching fees to the govt…)

so if you pay $10.00 hr for 1000 hrs in the week. your gross payroll is
$10,000 assuming no overtime…divide this into your net sales for the week…and you have labor %…if the owner works a full schedule and is paid a management wage…then the $10,000 should include him or her as well…

This is onlyy how I do it and I am not the final word on this topic…
just keep it consistent and use it for your own management style and decisions…


there is no “right or wrong” answer…depends on who ur trying 2 fool…I use QuickBooks & single out gross wages (drivers/insiders) applied to sales…have another line item for FICA contribution & show my “draw” under misc income…

Semper Fi
U.S.M.C. Auditor

I use everything related to paying my employees: wages, witholding, employer matching of fica and retirement, bonuses, paid vacation, unemployment, payroll service, and a base owners salary of what it would cost to replace owners actual labor.

We use ADP payroll so I take the cash requirement reported on each payroll and that is the number. (owner comp at a base rate is in there; it goes 100% into our simple plan)

I do not count profit (s-corp dividends) in labor %.

:slight_smile: I’m not trying to fool anyone - just making sure I’m not fooling myself!

If to be profitable, I need to keep payroll under 30% or if I read that someone else is at 22%, how do I know how I’m doing if I’m calculating wrong? If I just go straight pay, I’m at about 21%, loaded wage (with taxes included), I’m at about 26.5%. So, I’m OK then.


Read my post on the other thread recently started. That way no one is fooled.

You can run 26% labor all day long and still come up empty handed!


Labor as a percentage is a whole tricky thing. Some use it as a “fixed” cost, and some as a “variable”.

As my sales go up to approach our capacity for staff efficiency, my labor costs % go down. As slow sales times come up, or less than peak utilization of staff resources, the labor as % of sales goes up. It’s a fixed cost, but a variable percentage. This month, I am paying a lower % since my sales have been hitting a bit higher than average the last couple of months. Ah, the vagueries of pizzeria management!

Kris is right about the fixed costs thing. One of my pizza shops was doing great with percentages but its the dam fixed costs that wipe you out. You need to know them and figure it in to the equation immediately to find your break even. From that point on you play with your percentages so that you can pull 50% profit like myself. Got you! :lol: