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the Restaurateur

7 Things Every Restaurant Owner Should Know about Payroll

October 16, 2015

Payroll is a complex part of running a successful restaurant; It pays to know the ins and outs of your employee structure and how tips and wages will affect your payroll system.

As detailed in our recent blog, “4 Ways to Solve Common Cashflow Problems in the Restaurant Business,” dealing with the complex laws surrounding payroll is a difficult task for restaurant owners, and one that can result in cash shortages at times if not managed correctly. There are many unique laws surrounding wages and tips that will affect your payroll system, and as a restaurant owner, it is vitally important that you are aware of the payroll issues that you must tackle on a day-to-day basis.

7 important tasks for restaurant owners

  1. Pay attention to payroll deadlines. It is crucial that you are aware of deadlines for depositing payroll taxes to federal, state, and local agencies to avoid late penalties and interest charges. Your employees will obviously want you to be prompt with payroll, too.
  2. Make sure your employees are classified appropriately. For tax purposes, it is important that you classify employees accurately- i.e. independent contractors, seasonal employees, consultants, etc.
  3. Make sure overtime pay is calculated and reported accurately. If non-exempt employees were treated as exempt and did not receive overtime pay, you could run into a lot of difficulties. It pays to spend some time reviewing who is exempt and non-exempt in your business.
  4. Be aware of how tips affect payroll. Employers are required by the IRS to collect taxes on tips reported by employees. The IRS requires restaurant employees to report all tip income received during any pay period. If the total amount reported for all tipped employees is less than 8 percent of the total receipts for that pay period the employer is required to allocate tips among the applicable employees to raise their reported tips to the minimum 8% threshold. (Read more about tip reporting in our blogs, “Are Your Employees Properly Reporting Tips?” and “Tip vs. Wage Changes”)
  5. FICA tip credit. The Federal Insurance Contribution Act (FICA) tip credit (details in a past blog) can be applied by restaurant owners to reduce labor costs. The credit is applied toward the minimum wage of employees earning more than $30 per month in tips. Keep in mind that a waiter or waitress who earns more than minimum wage in tips can save your restaurant in direct wages and payroll tax liability, so take advantage of this credit when you can.
  6. Data entries should be checked twice. Ask your payroll processor if he/she double checks hour and wage entries before processing. You should also double check the payroll reports received from the payroll processor to make sure hours and wages look accurate. If hourly wages or employee hours are entered incorrectly, it could cost your business millions of dollars.
  7. Keep detailed payroll records. Keeping records of each employee’s time sheets, W-4 forms, and cancelled checks for four to six years is crucial. If the Wage and Hour Division of the DOL notifies you, you must be able to present your records to them within 72 hours of the notification, so you will want to be prepared with all the necessary information for each employee.

Given the complex nature of payroll in the restaurant industry, it helps to seek professional guidance to ensure that your business is effectively managing the system. Remember that payroll will make your cash flow fluctuate considerably, so it helps to know the ins and outs of your situation in order to be prepared each pay period.

Questions? Contact any member of our Hospitality Services Group.

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