Are you confident about running payroll for your restaurant?
Maybe you’ve just opened up and you’re running payroll for the first time – or perhaps you’ve already handled payroll a few times, but you want to be sure you’re doing everything right.
Or maybe you’ve finally reopened after Covid and you want a refresher on everything you need to do to run payroll correctly.
Payroll can be daunting for any business, but it has some unique challenges for restaurants. That’s because you need to include the value of tips received by your employees.
Here are five things to consider when running payroll for a restaurant.
- Check That Employees Are Being Paid Enough
Employees who receive tips don’t need to be paid the minimum wage. However, employees who don’t receive tips should be paid at or above the minimum wage.
Nationally, the minimum wage in the USA is $7.25/hour. However, most states have a higher minimum wage – often as high as $15/hour. Make sure you check what the wage should be for your state before you run payroll.
Your non-tipped employees should be paid a base rate of at least $2.13/hour. Again, this is a federal rate and you should check whether your state’s laws differ.
What if your employee doesn’t receive enough tips to make the correct minimum wage? As the employer, you need to make up the difference.
All employees who make more than $20 in tips in a month must report their tips monthly, normally by filling in IRS Form 4070 (and you’ll need to fill in IRS Form 8027 if your business is a large food establishment). They should keep a daily record of tips and they also need to report their earnings from tips on their income tax return.
The rules around tips can be quite complex, particularly when it comes to issues like tip sharing, so do consult a professional if necessary to ensure that you’re complying with all regulations.
- Always Allow Plenty of Time to Run Payroll
Don’t leave running payroll until the last possible minute. If something urgent comes up, you might not be able to complete payroll on time.
It’s crucial to pay your employees on time. You can potentially get into legal difficulties if you don’t, plus it’s hugely damaging to your relationship with employees. You want your staff to be able to focus on their work – you don’t want them to be worrying about how to cover their rent or pay for groceries because you were late paying them.
Keep in mind that even after you submit payroll, it’ll take time for direct deposits and checks to go through. Typically, this will be 2 – 5 days. It’s a good idea to let new employees know the dates when they can expect to receive their pay, e.g. “every other Friday”.
- Double-Check All Figures Entered
In a restaurant business, you’re likely to have employees on different shifts, potentially working different numbers of hours. It’s important to double-check that you’ve entered all figures correctly.
This means going through timesheets and ensuring that the reported hours of work are correct on the system. If timesheets are filled in manually, it’s especially important to be careful in checking for mistakes and discrepancies.
You also need to ensure that you’ve entered wages correctly. Underpaying an employee could lead to legal issues (or at the very least, a poor relationship with that employee). Overpaying an employee can end up being a very expensive mistake. While you can normally deduct overpayments from future wages, you only have a certain amount of time to do so.
- Make Sure You’ve Classified Your Employees Correctly
All employees in the US are classed as “exempt” or “non-exempt”. Non-exempt employees need to be paid one and a half times their usual rate for any hours worked over 40 hours per week. In some states (such as Nevada and Alaska), overtime is calculated based on hours worked per day.
Most restaurant workers will not meet the job duties or salary requirements to be considered exempt from overtime laws. This means you need to make sure you’re paying overtime correctly.
You also need to be sure that you’ve correctly classed your workers as employees or independent contractors. Getting this wrong is a common payroll tax mistake. In a restaurant business, your workers will almost certainly be employees, even if they work part-time rather than full-time. This is because you set their hours and control how they work, they’re a key part of your business, and you likely provide benefits like insurance and vacation pay.
- Use a Reputable (and Cost-Effective) Payroll Service
While it’s possible to run payroll manually, this takes up a lot of time and makes it all too easy to introduce errors. Keep in mind that payroll mistakes can lead to hefty fines, so running payroll manually could prove by far the most expensive option in the long run!
There are lots of different payroll services out there to help you process payroll. Most of these will charge you per employee and also based on how frequently you need to run payroll. It’s useful to get an idea of the average cost before deciding which service to opt for.
When you’re weighing up different payroll services, make sure you look at what is and isn’t included. For instance, some services will charge extra for filing required reports when you hire or rehire an employee.
You’ll also want to consider the range of options the payroll service offers. Many restaurant employees would rather be paid weekly than bi-weekly, for instance, so you might look for a payroll service that offers weekly payments at no extra cost.
Running payroll may seem daunting, especially the first time you do it. After all, your employees are relying on you getting it right – and mistakes with your payroll taxes could lead to hefty fines. But by keeping everything above in mind, you should be able to run payroll smoothly and confidently.