How to calculate weekly labour costs in hospitality (with a worked example)

The hourly rate on the rota is only part of what a shift costs. To know whether next week fits your budget, you need the full cost: paid hours, holiday pay, employer National Insurance and, for enrolled staff, pension. Here’s a simple way to work it out, then a worked example.

1. Count paid hours, not rostered hours

Take each shift’s length and subtract any unpaid break. A 10:00 to 17:00 shift with a 30-minute unpaid break is 6.5 paid hours, not 7. Workers aged 18 and over are entitled to one uninterrupted 20-minute rest break if they work more than 6 hours a day, and that break doesn’t have to be paid, so your contracts decide whether it’s paid time.

2. Multiply by each person’s rate

Use the rate in force on the day of the shift. From 1 April 2026 the National Living Wage for workers aged 21 and over is £12.71 an hour; it’s £10.85 for 18 to 20 year olds and £8.00 for under-18s and eligible apprentices. Rates change every April, so a week that spans 1 April may need two rates.

For salaried staff, a fair weekly share is their annual salary divided by the days in the year, multiplied by seven. Don’t divide by 52 and then by four to get a month: months have 28 to 31 days.

3. Add holiday pay

Most workers on a five-day week are entitled to 5.6 weeks (28 days) of paid holiday a year. For budgeting, it helps to treat holiday as a cost that builds up with every hour worked. For irregular-hours and part-year workers, holiday now accrues at 12.07% of hours worked in each pay period (for leave years starting on or after 1 April 2024), and employers may pay “rolled-up” holiday pay of 12.07% on top of each payslip.

4. Add employer National Insurance

For the 2026 to 2027 tax year, employers pay Class 1 National Insurance at 15% on each employee’s earnings above the Secondary Threshold of £96 a week (£417 a month). It’s worked out per person, per pay period, so two part-timers can cost less in National Insurance than one full-timer on the same total hours. Many smaller employers can also claim the Employment Allowance, which reduces their employer National Insurance bill; check HMRC’s guidance to see if you qualify.

5. Add pension contributions for enrolled staff

For staff enrolled in a workplace pension, employers must pay at least 3% of their “qualifying earnings”. Under most schemes that’s earnings between £6,240 and £50,270 a year, which is £120 to about £967 a week. Your scheme’s rules decide the exact calculation.

Worked example: one bartender, one week

A bartender aged 25 works 30 paid hours at £12.71. They work irregular hours and receive rolled-up holiday pay, they’re paid weekly, and they’re enrolled in a pension that uses qualifying earnings. Figures are rounded to the penny.

That’s about 27.5% more than the £381.30 of hourly pay. The exact figure for your team will differ: people under 21, staff below the National Insurance threshold, people not enrolled in a pension and the Employment Allowance all change it. But budgeting on hourly pay alone would have under-counted this shift pattern by more than a quarter.

6. Don’t forget overtime

If you pay more for hours over a weekly limit, cost the extra hours at the higher rate. Count them in the order they’re worked: the shifts that take someone past the limit are the ones that cost more.

Common mistakes

• Budgeting on rostered hours instead of paid hours after breaks.
• Treating a month as four weeks, which under-budgets every month except February.
• Leaving out salaried managers because they’re not on an hourly rate.
• Using last year’s minimum wage after 1 April.

This guide is general information, not tax or legal advice. Your payroll provider or accountant can confirm the figures for your business.