Running a restaurant’s payroll isn’t always easy and can actually be a daunting undertaking especially if you’re starting from scratch. There are a number of aspects to consider when thinking about how to run the payroll. For example, your restaurant likely has salaried workers as well as those who bring in tips. How do you account for that in the restaurant’s payroll to make sure everyone gets paid accurately and the payroll is done efficiently?
In this article, we’ll tackle some of the most frequently asked questions about restaurant payroll and give you some basic pointers regarding how to effectively manage the books for your restaurant.
Common questions about restaurant payroll
When you’re considering how to set up your payroll, you may have a million questions going through your head. Here are some common questions that we’ll tackle regarding a restaurant’s payroll:
- How does a restaurant handle payroll?
- In a restaurant payroll, what should the wage percentage look like?
- How does a restaurant payroll manage tipped employees?
- How do I create a payment schedule?
- What software can I use to integrate my restaurant payroll?
How does a restaurant handle payroll?
This is a loaded question because there are many different aspects to consider when thinking about the payroll and how to run it. There are some specifics about payroll at a restaurant that you’ll need to keep in mind when considering how to set it up. Unlike a payroll at a bank, a restaurant needs to consider industry-specific laws and regulations about scheduling and paying employees, especially because the majority of them are likely tipped employees. Because of this, it’s important to keep accurate data on hours worked and schedules. You’ll find that the following questions will help you better understand what fits into this more general question of how to handle the payroll.
For a restaurant payroll, what should the wage percentage look like?
Restaurant labor is one of the highest expenses that your restaurant will have (cost of food will likely be the highest). Here is a common formula to use when calculating labor cost as a percentage of sales: total labor cost total sales. A good guiding principle is to keep the labor cost percentage between 25%-35% of total sales. It’s important to keep track of this percentage so that it can be adjusted when changes need to be made. Remember that labor costs include the amount on a paycheck as well as things like benefits for your employees and taxes.
How does a restaurant payroll manage tipped employees?
First, you may be wondering who qualifies as a tipped employee. The Fair Labor Standards Act (FLSA) defines tipped employees as those who routinely receive more than $30 in tips each month. With this definition in mind, it’s also important to remember that regulations on tipped employees vary greatly depending on what state you’re in, and they may be added on by what is required on the federal level.
You’ll need to establish a tip reporting system to make sure your payroll is calculated properly. Along with this, the server tip credit is a method that allows you to include tips as a part of the employees’ hourly minimum wage. More information on how all of this is used and calculated can be found on the IRS Fact Sheet 15. Basically, it boils down to 5 things you need to inform your employee of before you can use the tip credit:
- A tipped employee must receive a cash wage of at least $2.13 per hour
- A tip credit cannot exceed $5.12
- The tip credit claimed by employer cannot exceed the amount received by the employee
- All tips are to be retained by the employee unless a tip pooling arrangement has been made
- The tip credit cannot apply unless tipped employees have been made aware of these terms
As mentioned before, it’ll be important to become familiar with the regulations in your particular area regarding this part of the restaurant’s payroll. It’s especially important to understand how practices like tip pooling work and the various legal considerations to be aware of.
How do I create a payment schedule?
This particular aspect of the payroll is completely up to you! Your payment cycle can be whatever you decide is best for your business. However, it does help with employee retention to pay employees as often as possible; the most common frequency is every two weeks (via direct deposit or check) with tipped employees keeping their tips at the end of each shift. Tracking hours worked will be a crucial part of your payment schedule because most positions are likely to be hourly. Train your employees on clocking in and out to ensure accurate payments.
What software can I use to integrate my restaurant payroll?
Keeping track of everything is a vital part of running your restaurant’s payroll. Maybe you’re old school and like to do everything on paper. Maybe you’re overwhelmed with all the different software options out there for keeping track of expenses and payroll for your restaurant. What’s the best way to keep track of this important information?
SynergySuite allows you to integrate your payroll software with your restaurant scheduling software. This option will help you easily optimize your scheduling (which directly relates to the payroll) and ensure payroll accuracy with biometric clocking, accurate timekeeping, payroll integration, and hourly sales vs. labor costs. It also helps you ensure you keep up with business compliance, which is important for your restaurant to run smoothly.
Steps to running a restaurant’s payroll
Now that we’ve looked at some important aspects to consider regarding payroll, let’s look at some things you’ll need to have arranged before you’re ready to run the payroll:
- Get an Employee Identification Number (EIN)
- Get state tax ID number
- Set up a bank account to pay employees and taxes
- Fill out employment forms (I-9, W-4)
- Decide on a payroll schedule
Now that you have those parts ready to go, you’re ready to run the restaurant payroll.
- Determine how you will handle tips in your restaurant. You’ll need to be aware of your state’s laws so your policy aligns with them regarding minimum wage for tipped employees.
- Be aware of taxes you are responsible for.
- Payroll taxes (federal withholdings and the employee and employer portion of FICA)
- Federal Unemployment Tax Act (FUTA), paid quarterly
- State Unemployment Tax Act (SUTA)
- City, county, or local taxes – determined by your location
- IRS Form 941, quarterly
- IRS form 940, annually
- Set up your payroll software. This will help you calculate and track all the important data for making sure employees are paid accurately and your costs are tracked efficiently.
Closing thoughts on restaurant payroll
Now, you’re ready! Getting your restaurant’s payroll organized and running smoothly is a major step in preparing your restaurant for business. You have the starting information which will allow you to make the best decisions for your restaurant and employees. Need help? If you’re looking for restaurant management software that integrates with your existing restaurant payroll service, we have a solution. Want to see how it works? Don’t hesitate to request a demo!