What Should Wages Cost as a Percentage of Revenue?
Benchmarks by industry, the true cost of a $70,000 employee, and the growth threshold that quietly adds ten points to your labour bill.
Last reviewed August 2026. Built on ATO Small Business Benchmarks for the 2023-24 income year and 2026-27 statutory rates.
Most owners know their wage bill in dollars and have never expressed it as a percentage of revenue. It is the second most useful ratio in a business after gross margin, and it is the one that moves without anybody deciding to move it.
What percentage of revenue should wages be?
For most Australian businesses, labour including superannuation should sit between 25% and 40% of revenue. Professional services usually run 30% to 35%. Labour-intensive businesses like hospitality and construction run 35% to 45%. Above 40% is a stress point that means you are either over-staffed or under-priced.
Below 25% is not automatically good. In an owner-operated business it usually means the owner is the subsidy.
The adjustment you have to make first
The ATO publishes labour as a percentage of turnover for around 100 industries. It is the best Australian data available. It also excludes three things people assume are in there.
It excludes the owner's own pay. The ATO formula is total salary and wages, plus contractor payments, minus payments to associated persons. Their plain-English version: "Do not include amounts paid to associated parties, for example, labour provided by a business owner or business partner."
It excludes superannuation. Super sits at a separate label on the tax return and is not in the labour figure.
It excludes payroll tax and workers compensation premiums. Both are separate expense lines.
So an ATO labour ratio of 30% is roughly equivalent to 34% to 36% once you add super and on-costs, and it assumes you work for free. Benchmark against it without adjusting and you will look better than you are.
Labour as a percentage of turnover, by industry
Published ATO ranges, 2023-24 income year. Before owner pay, before super, before on-costs.
Construction and Trades
| Industry | Smallest band | Middle band | Largest band |
|---|---|---|---|
| Electrical services | 21 to 35% | 17 to 30% | 23 to 34% |
| Plumbing services | 21 to 34% | 16 to 27% | 23 to 33% |
| Carpentry services | 24 to 39% | 21 to 35% | 27 to 43% |
| Painting services | 22 to 35% | 26 to 40% | 36 to 49% |
| Landscape construction | 18 to 29% | 17 to 28% | 24 to 34% |
| Cabinet making | 18 to 30% | 16 to 28% | 22 to 32% |
| Commercial cleaning | 31 to 48% | 29 to 47% | 35 to 56% |
Hospitality and Food
| Industry | Smallest band | Middle band | Largest band |
|---|---|---|---|
| Coffee shops | 21 to 32% | 21 to 32% | 27 to 35% |
| Restaurants | 18 to 30% | 23 to 32% | 27 to 34% |
| Takeaway food | 16 to 26% | 15 to 24% | 19 to 27% |
| Pubs, taverns and bars | 18 to 28% | 23 to 32% | 20 to 27% |
| Catering services | 19 to 28% | 16 to 27% | 23 to 33% |
| Bakeries | 14 to 25% | 15 to 28% | 25 to 34% |
Retail, Transport and Services
| Industry | Smallest band | Middle band | Largest band |
|---|---|---|---|
| Clothing retailing | 14 to 22% | 11 to 19% | 12 to 18% |
| Hardware and building supplies | 15 to 23% | 10 to 19% | 10 to 15% |
| Pharmacy | 10 to 15% | 10 to 14% | 10 to 13% |
| Road freight transport | 25 to 37% | 18 to 31% | 21 to 32% |
| Printing | 22 to 34% | 18 to 29% | 19 to 28% |
| Hairdressing | 23 to 36% | 25 to 37% | 32 to 44% |
| Beauty services | 23 to 35% | 25 to 37% | 27 to 39% |
| Health and fitness centres | 21 to 36% | 22 to 35% | 19 to 33% |
| Physiotherapy | 24 to 44% | 29 to 45% | 41 to 52% |
| Dental surgeons, general | 25 to 41% | 24 to 37% | 23 to 37% |
The ATO publishes no labour ratio at all for grocery retailing, courier services, furniture removalists, child care, veterinary services, concreting or tiling. Not an omission on my part.
The ATO publishes no labour ratio at all for grocery retailing, courier services, furniture removalists, child care, veterinary services, concreting or tiling. Not an omission on my part.
The growth threshold nobody prices for
Look down those tables at the largest band. Painting goes from 22 to 35% at the small end to 36 to 49% at the top. Physiotherapy goes from 24 to 44% to 41 to 52%. Hairdressing from 23 to 36% to 32 to 44%.
That is not businesses getting worse at managing wages. It is the owner stepping back and the work going onto payroll where it becomes visible.
Crossing that threshold structurally adds eight to thirteen points of labour to revenue. If your prices have not moved, that comes straight out of margin, and it happens at exactly the moment you think you are scaling.
This is the most important thing on this page. The growth that finally gets you out of the van is the growth that will kill your margin unless you reprice for it before you do it.
What a $70,000 employee actually costs
Two numbers matter here and people conflate them.
The cash cost
For a salaried employee, annual and personal leave are already inside the $70,000. Only these are genuinely additional:
| Component | Queensland | New South Wales | Victoria |
|---|---|---|---|
| Base salary | $70,000 | $70,000 | $70,000 |
| Super at 12% | $8,400 | $8,400 | $8,400 |
| Workers compensation | $1,053 | about $1,470 | $1,411 |
| Long service leave accrual | $1,169 | $1,169 | $1,169 |
| Under the payroll tax threshold | $80,622 | $81,039 | $80,980 |
| Multiplier | 1.15x | 1.16x | 1.16x |
| Payroll tax | $3,724 | $4,273 | $3,802 |
| Over the payroll tax threshold | $84,346 | $85,312 | $84,782 |
| Multiplier | 1.21x | 1.22x | 1.21x |
Add roughly another $945 where an award requires 17.5% annual leave loading.
The cost per productive hour, which is what you should price from
A full-time year is 1,976 paid hours. Take out four weeks annual leave, ten days personal leave and eleven public holidays and you have about 1,664 productive hours.
Nominal rate: $70,000 divided by 1,976 = $35.43 an hour
True cost per productive hour, under the payroll tax threshold: $48.45
True cost per productive hour, over it: $50.69
That is a multiplier of 1.37 to 1.43 on the number in the employment contract, and it is before recruitment, training, tools, vehicles, phones, software seats, supervision or downtime.
A tradesperson charged out at $85 an hour against a "$35 an hour" employee is not making $50 of gross margin. They are making about $36, before overhead. That gap is where a lot of trades businesses quietly lose money.
The 2026 numbers you are working against
| Item | 2026–27 figure |
|---|---|
| National Minimum Wage | $26.44 an hour, $1,004.90 a week, $52,254.80 a year |
| Minimum wage increase from 1 July 2026 | 6.0% |
| Modern award increase from 1 July 2026 | 4.75% |
| Superannuation Guarantee | 12%, now at its legislated maximum |
| Payday Super | Applies from 1 July 2026. Super paid every payday, not quarterly |
| Payroll tax, Queensland | $1,300,000 threshold, 4.75% |
| Payroll tax, New South Wales | $1,200,000 threshold, 5.45% |
| Payroll tax, Victoria | $1,000,000 threshold, 4.85% |
| Workers compensation, average rate | QLD 1.343%, VIC 1.8%, NSW around 1.87% |
Two things worth understanding about those wage numbers. The headline is 6% but most employers' actual award cost rose 4.75%, because the 6% applied to the two lowest classifications as part of phasing one of them out. And the minimum wage has risen roughly 30% cumulatively since July 2021, while the superannuation guarantee has gone from 9.5% to 12% over the same period.
The payroll tax cliff is worth pricing for. At $4M turnover with 30% labour, a Queensland business pays 4.75% on $1.2M of excess wages, which is about $57,000 a year appearing the moment you cross the line.
Reading your own number properly
The percentage on its own tells you almost nothing. It is the pairing that diagnoses.
Labour high, gross margin normal means over-staffed.
Labour high, gross margin thin means under-priced.
Labour low, owner working 70 hours means the owner is the subsidy, and the benchmark is actively hiding it.
There is also a fast diagnostic worth borrowing from hospitality that works more widely. Prime cost, being labour plus cost of goods, should stay under about 60% of sales. Strong operators land near 55%. Run the ATO numbers for restaurants over $2M and you get 31 to 36% cost of sales plus 27 to 34% labour, so 58% to 70% prime cost. The top of that band is a business in trouble, and the arithmetic says so before the bank account does.
What to do this week
Calculate two numbers. Total wages including super, divided by revenue. Then cost of goods plus labour, divided by revenue.
If the first is over 40% or the second is over 60%, you have found something worth working on, and it is nearly always a pricing problem before it is a staffing problem.
A Business Analysis measures both properly, splits them by division, and quantifies what closing the gap is worth in dollars.
Call me at 0491 729 043, or book a conversation at sarahcolgate.com.au.
Sources. ATO Small Business Benchmarks, 2023-24 income year, published March 2026. Fair Work Commission Annual Wage Review 2026. ATO superannuation guarantee rates and thresholds, 2026-27. State revenue office payroll tax rates and thresholds, 2026-27. Queensland Government and Victorian workers compensation premium announcements, 2026-27. ABS Wage Price Index, March 2026. The on-cost multipliers are calculated from those published rates. Payroll tax and workers compensation vary by state and industry. Confirm your own position with your accountant.
