Introduction to Restaurant Payroll
Restaurant owners and operators often approach the topic of payroll with apprehension. There’s the sense that payroll is time-consuming and difficult to get right in the current industry climate. In this article we’ll dispel that impression. Payroll does have multiple moving pieces, but simplifying the payroll process while paying your team members timely and accurately is, in fact, a realistic goal for every restaurant – with the right, hospitality-specific payroll processor!
Let’s begin with a simple definition: What is restaurant payroll?
Restaurant payroll is the catch-all term for the process of paying your employees and covering all related benefits and tax obligations.
Whether that means hourly wages for line cooks or a fixed salary for a manager, it’s critical that you pay your people the right amount and on a regular schedule.
When you have reliable and consistent procedures with technology in place for payroll, your employees will be satisfied that they are being compensated appropriately and will be willing to make a commitment to your workplace. Conversely, missing payroll, underpaying employees, or failing to honor benefits are quick ways to lose your workforce and run afoul of regulators.
How to Do Payroll for Restaurants
1. Create a Weekly Payroll Schedule
One of the keys to running payroll for restaurants well is to have a schedule that works for both your employees and your cash management. Back Office has studied the effects of different payroll schedules and now strongly advocates for weekly pay periods. Weekly payroll increases employee job satisfaction and reduces turnover, while simultaneously making your accounting more accurate by eliminating the accrual of payroll funds from week to week (as would occur during biweekly, or worse, monthly payroll).
2. Integrate Your Restaurant POS Data With Your Payroll Software
No one likes unnecessary manual data entry. Modern payroll software, like Back Office, directly connects to industry-leading point-of-sale systems to track critical metrics like employee hours worked, credit card tips, and more. This data integration enables quick and easy payroll generation based on accurate data with a minimum of human data entry.
3. Restaurant Payroll Paperwork
We’ll break down the major categories of payroll paperwork:
Employee information.
You need to verify that you’re paying the right person in the right way. That means you need accurate identifying information such as name, address, and bank information for direct deposit.
Tax forms.
Local, state and federal payroll taxes need to be deduced from each paycheck. Consult with a qualified accountant and your state revenue agency for the forms appropriate for your location.
Timekeeping records.
It’s important to have records of hours worked that can be audited. Your POS is the most likely source for this time tracking information for front-of-house workers. It’s a solid practice to encourage all employees to keep time diaries that they can compare with your POS data to track discrepancies.
Understanding Payroll Taxes.
In the US, you have payroll taxes at three different levels of government: local, federal and state. Each level has their own reporting and payment requirements. At the federal level, there’s both an employee portion of the payroll tax (which needs to be withheld from each paycheck) and an employer portion that is your responsibility to pay directly. It’s well worth your time to consult with a professional accountant who understands the nuances of your restaurant payroll compliance requirements.
As you can see based on the amount of paperwork involved (and that’s just the tip of the iceberg), the complexities of restaurant payroll and compliance create a substantial risk for costly errors. Back Office works with every payroll client to ensure compliancy, accuracy, and timeliness of payments. Our clients receive direct guidance on properly recording wages while paying employees in compliance with local, state, and federal law.
4. Calculate Payroll Payments and Tax Withheld
When you run restaurant payroll, you retain a portion of employee earnings from their gross pay to cover the employee portion of federal, state, and local payroll taxes. Then you make a direct deposit (or cut a check) for the employee’s net pay—the amount they take home. Some restaurant employees will have overtime pay due for hours worked beyond their regular shift. Modern payroll software will automatically calculate this amount for you by tracking employee hours worked and your overtime rate.
In the restaurant business, front-of-house employees typically receive tips as part of their compensation. Tips are regulated by local, state, and federal law and should be paid out at the end of each day. Employers must be careful to set the hourly rate of tipped employees to meet or exceed the minimum wage stipulated by local law.
5. Solving Payroll Tax Issues
Restaurant operators may find it burdensome to perform their duties in the business while simultaneously tracking changes to the tax and regulation environment. Additionally, when filing taxes, local, state and federal authorities set their own schedule for when payments are due. Some taxes may be assessed quarterly and others annually. Relying on professionals to assist in the filing process as well as focusing on compliance, help operators to avoid late payment penalties and costly compliance fees.
It will sometimes happen that the amount you pay in tax is more or less than what you owe. If more, the IRS will issue you a refund, and typically no action on your part is required. If less, then you may be assessed a penalty amount for underpayment of taxes.
Despite your best faith efforts at paying your taxes correctly, sometimes the IRS will object to some portion of your filing, and may assign an auditor to review your tax obligations. In this event, you’ll want to work with a team of professionals dedicated to resolving your tax dispute. Rely on your accountant, restaurant manager and your attorney to carefully review your tax liability and work with your assigned auditor.
6. Keeping Payroll Records
Accurate payroll requires accurate records. Once upon a time, records would have been kept in a binder in a back office, but with the advent of modern payroll software, record keeping has gotten a lot easier. Today modern software can collect required payroll information, track employee hours, and calculate pay and taxes. All these functions are automatically recorded, and can be reviewed at any time.
You may wonder, for how long should payroll records be kept on file? The IRS says you should retain payroll records for four years. Since these should be digital files, it’s easy to back up the information and keep it safe. Speaking of safety, remember that payroll information contains sensitive personal information of employees (such as their bank account numbers) and must be kept confidential. Only workers who need access to this information in the course of performing their duties should be granted it.
7. Choosing Restaurant Payroll Software
When reviewing the benefits of using restaurant payroll software compared to manually recording the hours employees work and manually calculating pay and taxes, purpose-built payroll software is a giant step up. Hospitality-specific payroll software such as Back Office will save you time, increase accuracy, and keep you in compliance with complex local, state, and federal law. Back Office integrates with your POS system to make data entry a thing of the past. Additionally, it connects with your insurance, benefits, and 401k systems to eliminate manual data transfers.
The best modern payroll system will offer flexible pay cycles to match the needs of your business, tax preparation help, multiple payment options such as direct deposit, checks, or cash, and online dashboards to track payroll metrics. Back Office offers all these features and more.
RELATED: Read our more in-depth blog about Tax Season for Restaurants Owners
Set Up to a Modern Payroll Solution
As we’ve seen, running payroll for restaurant employees has many moving pieces. You have complex legal and regulatory requirements to meet, and must carefully calculate employee wages, tips, and taxes. Performing these steps manually is an invitation to error and hours of tedious data entry.
Payroll software is ready to take the burden off your managers and automate previously manual tasks. And you’ll find these software solutions are surprisingly affordable. Try Back Office payroll software today.
