Along with managing the complexities of the business, restaurateurs also need to handle the daunting task of restaurant payroll processing effectively. Multiple rates of pay, tips reporting, taxes, deductions, overtime pay, and individual state laws regarding employee compensation are all concerns that restaurant owners need to proactively deal with. Restaurant owners need to set up a payroll system which can handle all of these with great accuracy and help to stay aligned with the state and federal regulations.
What You Need
- POS system
- Employer Identification Number (EIN)
- State and local identification numbers
- Employees timekeeping system
- Tips reporting
- Payroll tax filing
- POS interfacing in payroll software
Step 1 - Obtain an Employer Identification Number (EIN) by filling out IRS Form SS-Also, obtain the state and local identification numbers in case they are needed in the region where your business is set up.
Step 2 - Ensure that all employees fill out IRS form W-4, which provides information on the employee's Social Security Number and the allowances claimed by employees for withholding income tax. New employees should fill form W-4 almost immediately upon joining. Similarly, employees must sign a new W-4 if there is a change in their number of dependents.
Step 3 - Set up the time period for restaurant payroll accounting and processing. Accordingly, pay your employees on regular paydays, either once or twice a month. Make a decision on whether to compensate employees for time lost during orientation, meals, and for days when employees are taken ill or when they work from home. Verify all these rules and guidelines set by your state's Department of Labor.
Step 4 - Hire a bookkeeper or restaurant payroll service. This will save time and minimize errors. This person or service can execute key tasks associated with payroll, settle taxes, and handle insurance and retirement plans.
Step 5 - Employee tips credit and overtime pay calculations in restaurant payroll are undoubtedly complicated. Instead of setting up an extra rate of pay for tipped employees, determine the overtime rate for tipped employees before the payroll is finalized.
Step 6 - Point-of-Sale (POS) interfacing in payroll safeguards crucial data and reduces payroll errors. Once you import the data, the hours or employee tips can be modified prior to payroll submission. A batch report is generated specifying the wages and deductions.
Step 7 - According to the guidelines set by IRS, you are required to hold back a fraction of each employee's paycheck. When the taxable amount is determined, you can compute the amount you need to withhold using tax tables available with the government.
Tips and Warnings
- Create payroll records containing employees' name and address, date and total amount paid, taxable amount in the payment and returns filed, for federal tax purposes.
- Gross up your tipped employee's payment if his earnings are not in accordance with the minimum wage prerequisite. This is called Tip-to-Min.
- Verify the overtime rules set by your state. Per majority of the state laws, employee compensation for working over 40 hours per week should be no less than one and a half times the employee's hourly pay.
- Do not categorize all your employees as independent contractors else your business is likely to get penalized by IRS.
- If an employee's W-4 is not on file, consider the employee as a single individual who isn't granted any exemptions for withholding reasons.
- Do not forfeit the credit available to restaurant owners on their individual income tax return.