Nursery staffing costs: what percentage should payroll be?

Updated: 12 August 2026

Staffing is normally the largest cost in a nursery, so owners are right to watch it closely. The mistake is treating one percentage as a universal answer.

A nursery serving mainly babies, one with long opening hours and one with a very different funded-income mix may all need different staffing models. The useful question is not only, “Is payroll too high?” It is, “Why is our percentage at this level, and is the nursery producing enough income from the team and capacity we already have?”

How to calculate your nursery staffing cost percentage

Use the same period for both figures. A month is useful for regular management, but a rolling three-month or 13-week view can smooth out payroll timing and short-term occupancy movement.

Include the full employment cost

Gross wages alone will understate the real cost. Include:

• Salaries and hourly pay.
• Employer National Insurance and pension contributions.
• Overtime, bank staff and agency cover.
• Additional holiday or sickness cover.
• Bonuses and other regular employment costs.

Decide how you will treat recruitment, training and staff benefits, then apply that treatment consistently. If an agency invoice sits elsewhere in the accounts, bring it back into the calculation. Otherwise the percentage may look better while the nursery is still paying the cost.

Use income earned in the same period

Include private fees, funded entitlement income and regular charges earned from providing childcare during that period. Do not use loans, owner investment, unearned deposits or cash collected for a different period.

This distinction matters because cash received and income earned are not always the same. A separate cash-flow view is still needed to understand whether the nursery can meet payroll when payments leave the bank.

A simple example

If total employment cost for the month is £52,000 and earned nursery income is £80,000:

The calculation is straightforward. The interpretation is not. A result of 65% does not prove that the nursery is well run or overstaffed. It tells you that 65p in every £1 of earned income was used for employment cost in that period.

So what percentage should nursery payroll be?

There is no percentage that is automatically right for every nursery. A sensible staffing cost level is one that comes from safe, compliant and suitably qualified staffing, while leaving enough income to cover premises, food, utilities, administration, maintenance, finance, tax, reinvestment and an appropriate return.

The 2025 Childcare Provider’s Finance Report found that staffing accounted for between 70p and 88p of every £1 of provider costs, depending on provider type. That shows how dominant staffing is across the sector, but it is a share of costs, not a recommended payroll-to-income target for an individual nursery.

Read the 2025 Childcare Provider’s Finance Report ↗︎

Use external comparisons as context, not permission to force your nursery towards somebody else’s number. Your own trend, budget and room-level performance are more useful starting points.

Why the percentage moves

Your staffing percentage can rise because the employment-cost figure increases, because income falls, or because both happen together. Common reasons include:

• Low or uneven occupancy by room, day or session.
• A higher proportion of younger children requiring tighter staff-to-child ratios.
• Long opening hours with weak demand at the start or end of the day.
• A rota built around registered capacity rather than actual and forecast attendance.
• Agency use, sickness, vacancies, overtime or poor holiday planning.
• A management structure that no longer fits the size of the nursery.
• Fees and additional charges that have not kept pace with the cost base.
• A change in the balance of private fees and funded entitlement income.
• Training, meetings and non-contact time that are not planned into the staffing model.

This is why a high percentage is not always a “too many staff” problem. It may be an occupancy, pricing, funding-mix or room-configuration problem showing up through payroll.

What to review before cutting staff

Do not start with a blanket reduction. Start with the operating detail:

1. Check the source data. Make sure payroll, agency cost and income cover the same period.
2. Break the result down. Review rooms, days and sessions rather than relying only on one whole-nursery figure.
3. Compare attendance with deployment. Look at opening, closing, lunches, breaks, holidays, sickness and management cover.
4. Review the income side. Check occupancy, unused sessions, discounts, fee rates, funded income and debt.
5. Test the management structure. Be clear about who is room-based, who is supernumerary and what work managers need time to complete.
6. Look forward. A rota that fits this week may not fit known starters, leavers and holidays over the next six to twelve weeks.

Any staffing change must continue to meet the EYFS requirements that apply to the setting, including supervision, staff suitability, qualifications and staff-to-child ratios. The minimum ratio is not automatically the right operating model for every room or every child.

Check the current EYFS framework ↗︎
Check current early years qualification requirements ↗︎

Track the percentage in a way that helps you act

A useful monthly staffing review should show:

• Actual staffing cost percentage against budget.
• The same month last year, where the comparison is meaningful.
• A rolling three-month or 13-week trend.
• Staffing cost and occupancy by room, day or session.
• Agency, overtime, sickness and vacancy costs separately.
• Known changes to children, funding, fees and the rota.

Lower is not automatically better. A falling percentage caused by unsafe deployment, poor supervision, exhausted managers or reduced quality is not an improvement. The purpose is to build a nursery that is safe, operationally sound and commercially sustainable.

Where to go next

Use the Profit and Cash Flow Checker to organise an initial view of the numbers, and the EYFS Staffing Deployment Planner to review a planned staffing deployment. If you need an independent view on one defined staffing-cost question, use the £225 Single-Issue Business Review. If the issue crosses staffing, occupancy, fees and management performance, the £795 Nursery Business Health Check provides a structured review and prioritised action plan.

Explore support for running and improving a nursery ↗︎

This guide provides general commercial information, not accounting, legal, regulatory or safeguarding advice. Check your own figures, use the current requirements applying to your setting and obtain specialist advice where needed.