Assisted Living Labor Cost as a Percentage of Revenue
Labor is the largest expense in assisted living, and Ziegler's 2026 survey of senior living providers found that employee compensation averaged 56.2 percent of operating budgets, a share that has barely moved even as wages have kept rising. Because revenue in this business comes from care as much as from rent, the payroll line tells you more about a facility's real margin than any other number in the seller's statements.
Converting that share into a percentage of revenue depends on the operating margin, so a labor share in that range can mean very different payroll burdens from one building to the next. Take a facility with $2 million in annual revenue and a 25 percent operating margin, which leaves $1.5 million in expenses. If labor is 56 percent of those expenses, payroll runs $840,000, or 42 percent of revenue, and every point of wage inflation the market forces on you comes straight out of the margin.
The payroll number on a seller's profit and loss statement usually understates what you will spend. Owners who cover overnight shifts themselves, serve as their own administrator or rely on family members working for little or nothing produce a labor line that disappears the day they leave. Ask for the schedule, not just the payroll register, and price every shift at the wage you would have to pay a stranger to work it.
Total labor cost goes well beyond wages, because payroll taxes, workers' compensation insurance, health benefits, paid time off and training hours all belong in the same line. Overtime matters too, and a facility running heavy overtime is usually understaffed, which means the true cost of a full schedule is higher than the current payroll suggests.
Agency staffing breaks margins faster than any other line, because contract caregivers often cost far more per hour than employees, and a facility that has filled gaps with agency staff for the past year may look stable on census while losing money on every shift the agency covers. Separate agency spending from employee payroll when you rebuild the numbers, and model how long it would realistically take to replace it with hired staff.
Caregiver turnover adds a hidden labor cost, because every departure brings recruiting, background checks, orientation and training hours before the replacement can work a shift alone. Ask the seller for staff turnover over the past year, since a building replacing half its caregivers annually spends real money on hiring that never shows up as a separate line.
Acuity drives the staffing need as much as census does, and the rules in some states make that link explicit. In Oregon, staffing is set through each resident's acuity assessment rather than a fixed ratio, so labor rises as residents need more help even when the number of occupied rooms stays the same. Wherever you buy, a building whose residents are aging in place will need more care hours next year than it does today.
Revenue can offset some of that pressure when care is priced correctly, since facilities that charge level-of-care fees tied to assessed needs can recover added labor cost, while those charging a flat rate absorb it, so check how the seller prices care and when residents were last reassessed.
Rebuild payroll from the staffing schedule before you make an offer, with every shift filled at market wages and every benefit and tax included. Divide that total by trailing revenue, compare it with the seller's figure, and adjust the price for the difference. Then ask how often residents are reassessed and whether care fees follow the assessment, because that answer tells you whether revenue can keep pace with labor.
Rebuilt payroll is often the number that decides whether an assisted living deal still works, because labor can move the margin more than any other line after a change in ownership. I help buyers evaluate assisted living deals by rebuilding staffing costs, accounting for agency labor and benefits, and modeling how labor and care fee revenue affect profitability. If you are evaluating a facility and want to know whether its margins will hold up, send the financials and staffing schedule to amer@awadcapitaladvisors.com, and I can help you see what the margin looks like once payroll is rebuilt.