Restaurant owner FAQ

Prime cost, payroll and restaurant accounting, answered.

Plain-English answers to the questions Texas restaurant owners ask us every week. Still stuck? Chef Tally can answer in English or Spanish, or you can talk with our team.

Prime cost

Prime cost questions

The single most important number on a restaurant P&L — what it is, how to figure it, and what good looks like.

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What is prime cost?: Prime cost is your food and beverage cost (cost of goods sold) plus your total labor cost — wages, salaries, payroll taxes and benefits. Together they are the biggest costs you control, and they usually eat up more than half of every dollar of sales.
How do I calculate my prime cost percentage?: Add your food and beverage cost to your total labor cost, divide by total sales, and multiply by 100. For example, $100,000 in sales with $30,000 in food and beverage cost and $32,000 in labor gives a prime cost of 62%. For an accurate food cost, use beginning inventory + purchases − ending inventory, not just what you paid vendors this month. Want it done for you? Try our free prime cost calculator.
What is a good prime cost for my type of restaurant?: It depends on your concept. These are general industry ranges as a share of sales — the same ones our calculator uses:
Type of restaurant Food & beverage Total labor Prime cost
Quick service 25–32% 25–30% 55–60%
Fast casual 28–32% 25–30% 55–62%
Casual full-service 28–35% 30–35% 60–65%
Fine dining 30–38% 32–38% 62–70%
Bar, brewery or lounge 18–26% 25–30% 48–56%
Café, coffee or bakery 25–32% 30–35% 55–65%
Food truck 28–35% 20–28% 50–60%
Catering or commissary 28–35% 25–32% 55–65%
Ranges vary with your menu, location, service style and how costs are categorized. Treat them as a starting point, not a grade.
What counts as labor in prime cost?: Count hourly wages, overtime, salaries (managers, chefs, kitchen leads), employer payroll taxes, workers' compensation, health insurance and other benefits. Tips your staff earn from guests are their money, not your labor cost — but the cash wages and employer payroll taxes on them are. If you work in the restaurant and pay yourself a salary, include it too so you see the real cost of running the place.
Why should I track prime cost weekly instead of monthly?: Because by the time a monthly P&L shows food cost or labor drifting, the money is already gone. A weekly prime cost report lets you catch a price increase, a portioning problem or an over-scheduled week while there is still time to fix it.
How can I lower my prime cost without hurting the guest experience?: Start with the menu: cost every recipe, price dishes on contribution margin and push your best sellers. Then tighten portioning and ordering to cut waste, audit vendor invoices for price creep, and schedule labor to your actual sales by daypart. Our cost management and restaurant consulting teams — including real chefs — do exactly this.

Type of restaurant	Food & beverage	Total labor	Prime cost
Quick service	25–32%	25–30%	55–60%
Fast casual	28–32%	25–30%	55–62%
Casual full-service	28–35%	30–35%	60–65%
Fine dining	30–38%	32–38%	62–70%
Bar, brewery or lounge	18–26%	25–30%	48–56%
Café, coffee or bakery	25–32%	30–35%	55–65%
Food truck	28–35%	20–28%	50–60%
Catering or commissary	28–35%	25–32%	55–65%

Payroll & tips

Payroll and tip questions

Tipped wages, tip pools and payroll rules trip up more restaurant owners than almost anything else.

How do tipped wages work in Texas?: Texas follows the federal minimum wage rules. You can pay tipped employees a lower cash wage and take a tip credit, as long as their cash wage plus tips reaches at least the full minimum wage every workweek. If tips fall short, you must make up the difference, and you have to tell employees in advance that you are taking a tip credit.
Can managers or owners share in the tip pool?: No. Under federal law, managers, supervisors and owners can't keep any part of employees' tips, including through a tip pool. Back-of-house staff such as cooks and dishwashers can be included in a tip pool, but only if you pay everyone in the pool the full minimum wage and don't take a tip credit.
Is an automatic service charge the same as a tip?: No. A mandatory service charge (for example, on large parties or events) belongs to the restaurant. If you pass it on to staff, it is paid as wages and taxed through payroll, and it can't be used toward a tip credit. Tips are voluntary amounts the guest chooses to leave.
Do I pay payroll taxes on my employees' tips?: Yes. Employees must report their tips to you, and you withhold their taxes and pay the employer share of Social Security and Medicare on reported tips. Many restaurants can claim a federal tax credit for part of the employer taxes paid on tips — ask your CPA whether you qualify.
How often do I have to pay my employees in Texas?: Under the Texas Payday Law, hourly (non-exempt) employees must be paid at least twice a month, and salaried exempt employees at least once a month. Most restaurants run payroll weekly or every two weeks.
What payroll records do I need in case of a labor audit?: Keep time records, pay rates, tip records, your tip credit notices, new-hire paperwork and every payroll register, generally for at least three years. Our payroll and HR compliance team validates tips against your POS every pay run and helps you prepare for Department of Labor audits and unemployment claims.

Restaurant accounting

Restaurant accounting questions

Books, P&Ls, sales tax and delivery apps — the questions owners ask us most.

What's the difference between restaurant bookkeeping and accounting?: Bookkeeping is the day-to-day work: recording POS sales and deposits, coding invoices, reconciling bank and credit card accounts and running payables. Accounting turns those records into monthly financial statements, prime cost reports and the analysis you use to make decisions. Restaurants need both, done on a weekly rhythm.
What should a restaurant P&L show?: Sales broken out by category (food, beer, wine, liquor, catering, delivery), cost of goods for each, labor split between front and back of house, your prime cost, then operating expenses, occupancy and profit. Rent and other occupancy costs are healthiest under about 6–10% of sales. Our blog post on what a normal restaurant P&L looks like goes deeper.
Should my restaurant use cash or accrual accounting?: For managing the business, accrual accounting is usually better: it matches each month's sales with that month's costs, so your food cost and prime cost are real. Your tax return may use a different method — your CPA can advise on that.
How should I record DoorDash, Uber Eats and Grubhub sales?: Record the full sale as revenue and the commissions and fees as an expense, rather than only booking the smaller deposit. Then reconcile each payout to your orders so missing payments, refunds and fee errors don't slip by.
Do Texas restaurants have to collect sales tax?: Yes. Prepared food and drinks sold by restaurants are generally taxable in Texas, and alcohol sales carry their own mixed beverage taxes. The Texas Comptroller sets your filing schedule — often monthly for restaurants — and late filings add penalties, so it pays to have it on a calendar.
How soon should I get my monthly financial statements?: Within days of month-end, and by the middle of the month at the latest. Statements that arrive six weeks later are history, not a tool. Our restaurant bookkeeping clients also get weekly flash reports on sales, food cost and labor.
When does it make sense to outsource restaurant accounting?: When the books are always behind, when you can't get a clear prime cost every week, or when you're opening another location. A restaurant-only firm brings a trained team, the right software and consistent reporting, often for less than an in-house accountant — especially for multi-unit groups.

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These answers are general information for restaurant owners, not legal, tax or accounting advice for your situation. Wage, tip and tax rules change and can differ by city and state — check with your CPA or talk with our team before making decisions.

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