Table of contents
Managing a restaurant comes with its own sets of challenges and processing payroll is probably one of the most complex.
Not only because it needs to be properly explained to new employees to ensure compliance, but also due to the many complex laws restaurant owners must adhere to to avoid lawsuits and penalties.
In this blog, we take you through all the fundamental aspects of managing restaurant payroll effectively and efficiently, and tools you can use to put these basics into practice.
Hourly VS Salary
Most employees in the restaurant business are paid hourly. However, some roles may be salary, such as the head chef. It’s vital that you and your employees know the key differences between the two:
- Hourly employees (nonexempt employees) are paid at least minimum wage and must also be paid overtime as determined by the federal, state, or local standards.
- Hourly employees are required to track their time.
- Salaried (exempt workers) are paid an annual amount, which is broken into regular amounts each month or however often you have both agreed to pay the employee.
- “Exempt” applies to an employee who is not subject to minimum wage or overtime rules as long as they are paid a minimum of $455 a week ($23,660 a year).
Full-time VS Part-time
A salaried employee receives a payment based on an annual salary – they are paid based on the whole sum and not the hours worked. The employer decides if the pay period is weekly or monthly. In addition, salaried employees are not obligated to complete or sign a timesheet.
An hourly worker is paid based on the number of hours they have worked. The employer decides how many hours the employee works every week and month. In the United States, there are some states and cities that have authorized predictive scheduling laws which mandate that employers give hourly workers a specific notice for the hours they need to work, for example, a week, two weeks or even a month in advance.
Additionally, an hourly worker is obligated to record their hours through some kind of timesheet or time card system and the employer must verify it.
A tipped employee is a worker who regularly receives over $30 every month in tips, according to the United States Department of Labor.
Under the Fair Labor Standards Act (FLSA), all nonexempt (hourly) employees are required to be paid a minimum wage of $7.25 per hour. Although the minimum wage amount may vary based on the state or city you’re based in.
Some states allow for a tip credit against the minimum wage for “tipped employees.” Each state varies in who qualifies as a “tipped employee” and the credit that may be taken. Some states follow what the Federal Insurance Contribution Act (FICA) Tip Credit has laid out while some states impose additional requirements and/or limitations.
When it comes to tipped employees, an employer is allowed to credit up to $5.12 per hour in tips toward the minimum wage, as long as the employer pays the employee at least $2.13 per hour in cash wages (i.e., $7.25 minus $5.12) and makes up the difference if the employee does not earn sufficient tips.
What Tax Issues Are There?
When handling payroll, tips can qualify as taxable wages. The Tax Equity and Fiscal Responsibility Act (TEFRA) and Tip Reporting and Alternative Commitment (TRAC) are two laws that govern taxable income. Under both, employees must earn over $20 in a calendar month to have tips taxed.
Automatic gratuities (like adding an automatic tip to large bills) are considered revenue for the restaurant, and not as tips for the server, as per the IRS. Therefore, you are required to pay taxes on these amounts.
Useful tip:To make sure that your employees earn minimum wage and that you are filing the right amount in taxes, it’s best that your employees report the tips they earn. Employers can set up systems to help track tips and daily tip reports also help ensure the restaurant payroll and your federal reporting is as accurate as possible.
Overtime for Tipped Employees
A lot of restaurant owners use tip credit to help save on labor costs. But when it comes to overtime, you need to account for the overtime rate based on the full hourly wage and not at the discounted tip credit. Yes, you are still allowed to use the discounted tip credit for all the hours worked, but overtime must be calculated from the full rate.
The Department of Labor’s Field Operations Handbook offers this example when calculating overtime for a tipped employee:
An employer that pays a cash wage of $2.13 per hour and claims tip credit of $5.12 while the tipped employee works 45 hours. The employer complies with the requirements to inform its employees about the tip credit, and the employee receives at least $5.12 per hour in tips.
Wages would be calculated as per the following:
- $2.13 (cash wage) + $5.12 (tip credit) = $7.25 (regular rate)
- 45 hours (total hours worked) × $7.25 (regular rate) = $326.25 (straight time wages due)
- 5 hours (overtime hours) × .5 × $7.25 (regular rate) = $18.13 (overtime wages due)
- $326.25 (straight time wages due) + $18.13 (overtime wages due) = $344.38 (total wages due)
- 45 hours (total hours worked) × $5.12 (tip credit) = $230.40 (total FLSA 3(m) tip credit)
- $344.38 (total wages due) – $230.40 (total FLSA 3(m) tip credit) = $113.98 (direct or cash wage due)
According to Fair Labor Standards Act (FLSA),
“Unless exempt, employees covered by the Act must receive overtime pay for hours worked over 40 in a workweek at a rate not less than time and one-half their regular rates of pay.”
Some states may have their own overtime regulations which have set the standards at over eight hours in a day or 40 hours in a week. It’s vital that you’re also aware of the exemptions for companies that have less than four employees.
On January 1, 2020, the FLSA salary threshold increased to $35,568 annually, or $684 weekly. These new rules means that more employees will be eligible for overtime pay.
However, an employee is exempt if they meet all of the following: are paid on a salary basis, earn at least the FLSA salary threshold ($35,568 per year starting in 2020), and also have executive, administrative, and professional job duties.
The DOL’s have also changed the annual compensation requirement for highly compensated employees to $107,432 per year. To be eligible as a highly compensated employee, you must meet all the following: earns $107,432 or more per year, performs office or non-manual work, and regularly performs at least one of the duties of an exempt executive, administrative, or professional employee.
In addition, the new laws also state that employers can also use nondiscretionary bonus compensation and incentive payments to pay up to 10% of the new exempt salary threshold.
According to the U.S. Department of Labor, if an employer provides short five-to- 20-minute rest breaks, then this time is counted as being on the clock and must be paid as a result. When meal breaks are 30 minutes or more then they are not paid.
Technology is the Solution for Restaurant Owners
These days, restaurant owners know they must be efficient and spend as little effort and money as possible on tracking employee working time and calculating payroll, that’s where software solutions like Connecteam come in.
Connecteam is the perfect solution for employee time tracking, creating timesheets and expediting payroll,thanks to its simple-to-use platform and super affordable pricing of just $29/month, or you can use the free plan.
When you take everything mentioned into consideration, using a software solution like Connecteam to ensure smooth and accurate payroll is a no-brainer.
Once employees have clocked in and out, Connecteam comes in to calculate total hours, overtime, PTO, absences, and every other factor that can have an effect on your employees’ paychecks.
Restaurants can benefit from Connecteam’s time tracking and payroll capabilities in the following ways:
- Guarantee that employees clock in and out at the right time and location.
- Easily remind employees to check their timesheets, ensuring that all information is mistake/discrepancy free.
- Lock timesheets to prevent further adjustments and requests.
- Simplify payroll with a seamless integration with Quickbooks Online and Gusto.
After tracking your employees’ hours, you can ship your timesheets directly to QBO in a click. And just like that – payroll is ready.
The #1 Payroll Software Solution for Your Restaurant
It’s also worth mentioning that with Connecteam, you can also easily track and manage your employees work hours with a time clock that’s easy to use, easy to implement and packs everything you need to avoid buddy-punching and time theft, improve time management, and comply with labor law.
Also, you can use GPS tracking technology such as Breadcrumbs to collect random location points. This ensures that managers have an idea of where employees worked while they were clocked in, even giving them a holistic animated overview of each employees’ locations throughout the day.
The Bottom Line on Restaurant Payroll
Now that you are fully aware of the restaurant payroll challenges that can rear their ugly head – you should be more prepared to manage your staff effectively, keep your employees compliant, reducing chances of legal issues in the future.
Combine this extensive knowledge with a digital solution to expedite your payroll process, and suddenly, you’re looking at a restaurant workforce that are performing healthier habits and more likely to receive accurate paychecks in the long run.