How do you calculate wages as a percentage of sales?

Add up your total labour cost for a period (gross wages plus super, KiwiSaver or employer pension, employer National Insurance, payroll tax and workers' compensation), divide it by sales for the same period without GST or VAT, and multiply by 100. $62,100 of labour against $180,000 of sales is 34.5%.

What is a good wage percentage?

It depends on the kind of business. Figures often quoted are around 30% or less for cafes and restaurants, where food is the other big cost, and up to 50% or more for service businesses that sell their people's time and buy little stock. A better test is your own: wages as a share of gross profit, and whether the figure is rising or falling month by month.

Does Xero show wages as a percentage of sales?

Not as a ready-made figure. The Profit and Loss shows sales and the wage accounts, so you can work it out by hand or with this calculator. The Executive Summary report does not include it.

Should super, KiwiSaver or employer NI be included?

Yes. They are part of what each employee costs you, so leaving them out makes the percentage look lower than it is. Include payroll tax and workers' compensation too if you pay them. Do not include the GST or VAT on sales.

What if I work in the business and do not pay myself a wage?

Then your wage percentage looks better than it really is. Enter what it would cost to pay someone to do your hours. The calculator shows the percentage with and without it, so you can compare yourself with a business that employs a manager.

Why is wages as a share of gross profit useful?

Because it works across industries. Gross profit is what is left after stock, materials or food, and it is what pays wages, rent and everything else. If wages take most of it, there is little left for overheads and profit, whatever your wage percentage of sales is.

Are my figures stored or sent anywhere?

No. The calculation runs in your browser. Nothing you type is saved or sent to our server or anyone else. The only exception is if you ask us to email you the result: then your email address and a short summary of the result are stored, and nothing is sent until you confirm.

Wage percentage calculator: wages as a % of sales, from Xero

How the calculator works

Labour cost = gross wages and salaries + on-costs (super, KiwiSaver, employer NI and pension, payroll tax, workers' compensation).
Wage percentage = labour cost ÷ sales × 100, with sales for the same period and without GST or VAT.
Sales per $1 of wages = sales ÷ labour cost.
Wages as a share of gross profit = labour cost ÷ (sales − cost of sales other than wages) × 100.
At your target: the labour budget is target × sales, and the sales that would bring today's labour to target are labour cost ÷ target.

A worked example

A cafe's quarter, taken from its Profit and Loss. Made-up figures to show the arithmetic.

	$
Sales (without GST)	180,000
Food and drink (cost of sales)	54,000
Gross wages	54,000
Super (12%) and workers' compensation	8,100
Labour cost	62,100

Wage percentage: $62,100 ÷ $180,000 = 34.5%, against a 30% target.
Sales per $1 of wages: $180,000 ÷ $62,100 = $2.90.
Share of gross profit: gross profit is $180,000 − $54,000 = $126,000, and wages take $62,100 ÷ $126,000 = 49.3% of it, leaving $63,900 for rent, other overheads and profit.
To reach 30%: labour for these sales would be $54,000, so $8,100 less. Or, with the same rosters, sales of $62,100 ÷ 0.30 = $207,000, which is $27,000 more.

The owner also works 30 hours a week without a wage. At $40 an hour for 13 weeks that is $15,600, and with it labour is $77,700 ÷ $180,000 = 43.2% of sales. That is the honest figure if the owner ever wants to step back. Press "Load the worked example" above to see it in the calculator.

Run a cafe or restaurant? The restaurant profit and loss statement guide puts wages next to food cost as prime cost, and shows how a quiet month turns a 20% drop in sales into a 90% drop in profit.

Getting the figures from Xero

Go to Accounting › Reports › Profit and Loss and pick a period: last month, last quarter or the last 12 months. A longer period smooths out weeks with five pays.
Sales: Total Trading Income. If you are registered for GST or VAT, Xero already shows it without the tax.
Wages: add every wage account. Some businesses put direct wages in Cost of Sales and the rest in Operating Expenses, so check both sections. Add the super, KiwiSaver or pension account, employer NI, payroll tax and workers' compensation as on-costs. If you run Xero Payroll, the Payroll Activity Summary gives earnings and super or pension totals for the same dates; Xero payroll reports shows how to check them against the Profit and Loss.
Cost of sales: Total Cost of Sales, minus any wages that sit in it. How to read a Profit and Loss in Xero explains each section.
To track it month by month, run the report with 12 periods by month; Profit and Loss by month in Xero shows how.
To see wages next to every other cost as a share of sales, and how each share moved on last year, common size P&L walks through it with a worked two-year example.

How to bring the wage percentage down

Roster to your sales pattern. Compare hours worked with sales by day and hour; quiet shifts with a full roster push the percentage up fastest.
Raise prices. A higher price lifts sales without adding hours. The price increase calculator shows how many sales you can lose before you are worse off.
Watch your margin, too. Wages and cost of sales both come out of the same sales; gross profit margin in Xero covers the other half.
Know the sales you need. The break-even calculator shows the sales that cover your overheads, wages included.
Before adding a role, the can I afford to hire calculator shows its full monthly cost and the extra sales it has to bring in.

If wages are fine but there is nothing left to pay yourself, see how much can I pay myself and where is my money going.

Questions

How do you calculate wages as a percentage of sales?: Add up your total labour cost for a period (gross wages plus super, KiwiSaver or employer pension, employer National Insurance, payroll tax and workers' compensation), divide it by sales for the same period without GST or VAT, and multiply by 100. $62,100 of labour against $180,000 of sales is 34.5%.
What is a good wage percentage?: It depends on the kind of business. Figures often quoted are around 30% or less for cafes and restaurants, where food is the other big cost, and up to 50% or more for service businesses that sell their people's time and buy little stock. A better test is your own: wages as a share of gross profit, and whether the figure is rising or falling month by month.
Does Xero show wages as a percentage of sales?: Not as a ready-made figure. The Profit and Loss shows sales and the wage accounts, so you can work it out by hand or with this calculator. The Executive Summary report does not include it.
Should super, KiwiSaver or employer NI be included?: Yes. They are part of what each employee costs you, so leaving them out makes the percentage look lower than it is. Include payroll tax and workers' compensation too if you pay them. Do not include the GST or VAT on sales.
What if I work in the business and do not pay myself a wage?: Then your wage percentage looks better than it really is. Enter what it would cost to pay someone to do your hours. The calculator shows the percentage with and without it, so you can compare yourself with a business that employs a manager.
Why is wages as a share of gross profit useful?: Because it works across industries. Gross profit is what is left after stock, materials or food, and it is what pays wages, rent and everything else. If wages take most of it, there is little left for overheads and profit, whatever your wage percentage of sales is.
Are my figures stored or sent anywhere?: No. The calculation runs in your browser. Nothing you type is saved or sent to our server or anyone else. The only exception is if you ask us to email you the result: then your email address and a short summary of the result are stored, and nothing is sent until you confirm.

This calculator gives an estimate from the figures you enter. It is not financial advice. Xero is a trademark of Xero Limited. This tool and ReportPilot are independent and are not made or endorsed by Xero.

Wage percentage calculator: what share of your sales goes on wages?

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