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How to Run Restaurant Payroll: 3 Tips to Get You Started

Congratulations! You opened your own restaurant, or you are re-opening coming out of the pandemic, and have hired on a top tier staff. What’s next? Running payroll for any business can feel overwhelming but the restaurant and hospitality industry have their own set of rules and regulations that can make it feel particularly challenging.

Here is a general guide to help simplify some of the aspects of payroll management in the restaurant industry.

1. The Basics

Regardless of what business you are in, you will need to have some basic items in place in order to get started.

2. Minimum Wage & Tip Reporting

Next is considering pay rates for your employees. The minimum wage you are allowed to pay an employee largely depends on the state your business is in. Under federal law, the minimum wage is $7.25 for non-exempt employees.

However, if your state allows it, employers can take a tip credit against the minimum wage for tipped employees. This means that an employer is permitted to credit up to $5.12 an hour in tips if:

  • The employer pays the employee a minimum of $2.13 per hour and;
  • The employee can make up the difference in tips.

If the employee does not make up the difference in tips, the employer must then make up that difference in wages.

You will need to implement a proper reporting system for tips to ensure compliance and accurate calculations. If you are in a state that allows for a tip credit, your tipped employees should report their tips to you daily to ensure their wages are correctly calculated.  Similarly, it is recommended to keep copies of all reported tips in case of an IRS audit.

Under the Fair Labor Standards Act (FSLA), states that allow for tip credits- must share the following with their tipped employees:

  • The tip credit can’t exceed the amount of tips the employee earned.
  • Under Federal law, employers cannot deduct any register shortages from an employee’s wages.
  • Overtime is calculated by taking the standard minimum wage and subtracting the tip credit.
    Restaurant Payroll

Additionally, it should be noted that managing employee tips are also subject to local and federal regulations. For example, some states require employers to pay all employees the full minimum wage if the employer has employee’s pool their tips. Make sure to check with your local and state regulations before implementing any tip policies.

3. Tracking Wages

Unlike traditional office roles, restaurant and hospitality-based employees often have to fill more than one role that involves multiple pay rates. Tracking those various rates and hours is important for compliance and tax purposes. Using an automated restaurant payroll service coupled with a good electronic timekeeping system can help simplify the process by:

  • Automating payroll tax calculations & payments to all agencies (local, state, federal)
  • Managing electronic payroll records for employees and employers
  • Processing manual check calculations
  • Wage garnishment management
  • Administering direct deposits
  • Keeping track of time and attendance for employees
  • Processing necessary monthly new hire reports for all states

Payroll service providers and good timekeeping systems can also automatically track and properly calculate overtime wages. This feature can save you a significant amount of time and help greatly reduce errors.

If your business is facing challenges regarding your payroll and HR management, perhaps it’s time to upgrade to a payroll service that is automated and accurate. Payroll Systems offers scalable payroll service that match your payroll needs. And we back our technology up with human support, so you will have a dedicated specialist to talk to. Contact us today for more information.

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This article provides general information and shouldn’t be construed as legal or HR advice. Since employment laws may change over time and can vary by location and industry, please consult a lawyer or HR expert for advice specific to your business. You can also contact Payroll Systems to inquire about our HR support services.