Managing a restaurant comes with its own sets of challenges and processing payroll is probably one of the most complexes. 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 avoid lawsuits and penalties.
In this blog, we take you through all the fundamental aspects of managing restaurant payroll effectively and efficiently.
Hourly VS Salary
Most employees in the restaurant business are paid hourly, however some roles may be salary, 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 a 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.
Rules and regulations regarding tipped employees
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 handing payroll, rips 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.
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,
“Federal law does not require lunch or coffee breaks. However, when employers do offer short breaks (usually lasting about 5 to 20 minutes), federal law considers the breaks as compensable work hours that would be included in the sum of hours worked during the workweek and considered in determining if overtime was worked. Unauthorized extensions of authorized work breaks need not be counted as hours worked when the employer has expressly and unambiguously communicated to the employee that the authorized break may only last for a specific length of time, that any extension of the break is contrary to the employer’s rules, and any extension of the break will be punished.
Bonafide meal periods (typically lasting at least 30 minutes), serve a different purpose than coffee or snack breaks and, thus, are not work time and are not compensable.”
In short, 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
In 2020, restaurant owners know they must be efficient and spend as little effort and money on tracking employee working time and on employee scheduling, that’s where software solutions like Connecteam come in. Connecteam is the perfect solution for employee time tracking and scheduling thanks to its simple to use the platform and super affordable pricing of just $29/month for up to 200 users, or you can use the free plan.
Easily track time:
Track and manage your employees work hours with a time clock that’s easy to use, easy implement and packs everything you need to avoid buddy-punching and time theft, improve time management, comply with labor law and make payroll processes faster and more efficient; tags and shift attachments; automated breaks; overtime and double time; automated push notifications and reminders, and more.
Scheduling has never been easier:
Manage your employees’ everyday jobs and shifts by easily creating single, multiple or team shifts with calendar view and drag & drop options. Use our GPS status updates for visual job progress, and easily include the location for quick navigation, notes with free text description and file attachments of any kind for employee collaboration, so employees are always on top of their daily duties.
By being prepared, knowing all the rules and regulations and utilizing the best software, you’ll get your restaurant payroll done right every time.
Easily track hours, create an effective schedule and manage payroll with Connecteam
In the click of a button, you can easily track your employee’s work hours, create an effective schedule and manage payroll. But Connecteam doesn’t stop there, each plan includes features that allow for easy communication, surveys, engagement, training, on-boarding, checklists and forms, and so much more. For a simple price that doesn’t charge per user, signing up for Connecteam is a no-brainer.