Restaurant Payroll Challenges and Mistakes

Payroll processing can be a challenge for any business, such as the challenge of having to Submit Payroll on the Day of a Holiday. However, restaurants in particular experience some of their own challenges and common mistakes regarding employee payroll. 

Aside from the fact that oftentimes restaurant owners and managers have far more additional responsibilities besides payroll than other business types, payroll in the restaurant business takes the right tools and resources to do quickly and easily (and accurately).

Here are some things to know and avoid when processing payroll for a restaurant.

Payroll for Restaurants

When processing payroll for restaurants, common mistakes and challenges include: 

• Payroll Compliance
• Handling Tips and Gratuity
• Variable Hours and Overtime
• Misclassifying Employees
• Forms & Paperwork

While there are many other issues and challenges that can come up when processing payroll (almost endless), these are some of the most common in the restaurant business and one of the many reasons why small business owners shouldn't process payroll on their own.

Depending on the magnitude to which your restaurant is experiencing issues in the following areas, you may want to consider when you outsource your payroll. 

Payroll Compliance for Restaurants

Payroll compliance is one of the core challenge areas for any business, let alone restaurants. However, there are certain specific instances that prove more complex for restaurants. 

The consequences of non-compliance for restaurants can be dire. Owners risk financial penalties such as fines, back wages, and the payment of back taxes. There is also a risk of legal consequences that may involve lawsuits from employees and other actions taken by corrective authorities. 

Managing Wage & Hour Laws

Due to the variant in employee types, overtime accumulation, hours worked, forms of compensation, and more, employers need to ensure both an understanding of the Fair Labor Standards Act (FLSA) and local payroll laws if they want to stand a chance of success. 

For instance, New Hampshire Payroll Laws include a stipulation for a New Hampshire Tipped Employee Minimum Wage. 

Managing Payroll Taxes

Managing payroll taxes is another area of compliance that restaurants often struggle with. For instance, because the industry has a lot of tipped compensation, it is important to understand what should be included as taxable compensation in your state. 

Examples of taxable compensation include: 

• Tips, bonuses, commissions, service charges
• Non-cash tips like gift cards
• Fringe benefits
• Overtime pay
• Vacation pay
• Sick pay

Here is a guide to small business tax credits for 2024.

Handling Tips and Gratuity

As mentioned above, the restaurant industry is a big tipping business, so owners need to understand how to handle tips and gratuity regarding payroll. Properly managing tips helps manage compliance with tax requirements but also fosters a fair and transparent work environment, crucial for maintaining staff morale and loyalty.

All tips are considered taxable and must be reported to the employer so that the proper taxes are withheld. Employers must also ensure they report the correct amount of tips for FICA (Federal Insurance Contributions Act) tax purposes.

Lastly, employers should provide employees with a written statement of their tips each pay period. Using payroll software that includes functionality for tip reporting can simplify this process

Issues with Pooled Tips

Due to varying local and state laws, how restaurant owners should handle pooling tips depends on the state. Employers should be aware of any such laws that apply to them. 

For instance, in California, “every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for" while in New Hampshire employers simply cannot require or coerce employees to share or pool their tips.

Tip Credits for Restuarant Owners

Under the Federal Insurance Contribution Act (FICA), restaurant owners can apply what their workers earn in tips towards their minimum wage requirements.

While this can help reduce labor costs, it can also lead to issues. Employers are still responsible for ensuring that total compensation (wages + tips) always meets the minimum wage requirements of their state. 

Variable Hours and Overtime

As a result of fluctuating demands and the industry's affinity for various types of employees, keeping track of hours worked and overtime hours is incredibly difficult. 

It is crucial that restaurants utilize the modern timekeeping and time-tracking tools available from today's payroll providers. These systems not only help track and capture hours worked, but help manage overtime pay, compliance, and eligibility as well. 

Our timekeeping software works hand-in-hand with our payroll solution to achieve the above, helping to tackle this challenge. 

Misclassifying Employees

Part of the issue that employers have with managing variable hours and overtime is the issue of properly classifying employees under the FLSA.

More than most other industries, restaurants have a need for full-time and part-time employees, from the lowest busboy to the head chef. Depending on the location or nature of the restaurant, seasonal help may also be necessary. Even independent contractors can be of use, such as custodial services, or maybe even a delivery person. 

Understanding how to properly classify employees so that things such as overtime pay are calculated correctly is crucial, and much more work for a restaurant than most other businesses. A payroll service company can help with such classifications. 

Forms & Paperwork

While forms and paperwork are a gruesome, un-fun part of running any business, restaurant owners have far less time to work on such things due to additional responsibilities regarding their business. 

By utilizing modern workforce management solutions, such as payroll, HR, and timekeeping, employers can keep employee data, forms, and paperwork in a central, cloud-based, location. This way they are kept safe and secure, and are accessible anytime, anywhere, and from any device. 

Payroll Services for Restaurants

The payroll services at Trivantus are like no other. We are backed by years of unmatched experience, security, and technology. Our goal is to streamline payroll processes and give employers their freedom back to work on other important responsibilities for their restaurants.

Contact us today to learn more, or watch our payroll demo video to get a better look at our software solution.