As a successful restaurant is built upon the hard work of several different staff members. From Managers to service staff to chefs to dishwashers, all these positions serve an essential role in the overall flow and success of the business. And all these positions need to get paid.
In this guide, we’re going to break down the critical factors you as a restaurant owner or manager need to keep in mind when calculating, distributing, and processing restaurant payroll.
What Is Restaurant Payroll?
When we use the term “payroll” we’re referring to the people who receive pay from a company, the wages that are paid, or the process of paying employees. Processing payroll can be a large task that requires time, money, and resources for business owners. Not to mention the complexities behind the rules and regulations you’re required to follow in order to stay legally compliant and pay your staff on time can easily add an additional layer of stress.
Also, within the food and beverage industry restaurant owners must keep in mind industry-specific laws related to employee scheduling and tipped wage workers.
What You Need To Run Your Restaurant’s Payroll
There are several important factors you must have in order to process payroll at your bar or restaurant:
- Your Employee Identification Number (EIN) and state tax I.D. numbers
- A separate bank account to pay employees and taxes
- Completed employment forms, such as I-9 and W-4
- A payroll schedule
We can’t talk about restaurant payroll without factoring in minimum wage. Unlike employees in almost every other field, restaurant staff who receive tips as part of their income can also earn a minimum wage that is different than other employees, depending on the state your business is in. There may also be some local requirements where your business is located, which can override the federal minimum wage regulations.
Having this information is important before you look for specific restaurant payroll services and software (which we’ll go into more later) since you may or may not have to calculate the difference between the restaurant minimum wage and the standard minimum wage to determine if the employee has made up the difference.
But wait, there’s more. Let’s take a moment to discuss a few more important payroll factors:
Tip Reporting
In order to calculate payroll accurately, you’ll need to implement a tip reporting system. If you are factoring in a tip credit, your tipped employees will need to report their tips to you on a daily basis in order to ensure proper payment.
It’s important that you retain a copy of all reported tips in case of an IRS audit or an employee complaint.
If your business is located in a state where you can utilize tip credits, the Fair Labor Standards Act (FSLA) requires you to provide your tipped employees with the following information:
- The amount of their wage, which can be no lower than $2.13 per hour.
- The maximum tip credit that you (as an employer) can take is $5.12 per hour.
- The tip credit taken cannot exceed the amount of tips the employee earns.
- It is the employer’s responsibility to substantiate that wages paid to all employees meet the minimum wage requirement.
- If the tip credit does not meet minimum wage requirements, you have to make up the difference.
- You are barred by federal law from deducting any breakage or register shortages from employee wages.
- Overtime is calculated based on the standard minimum wage minus the tip credit.
Find out more about restaurant tipping here.
Minimum Wage vs. Tipped Wage
Unless your business is in California, Nevada, Oregon, Washington, Montana, Minnesota, or Alaska, you will need to be sure to calculate wages properly. To understand how payroll works for a restaurant employee, let’s look at a example:
Background:
- Liam currently earns $2.13 an hour
- He worked 37 hours last week and earned $150 in tips
To calculate his check, you would do the following:
37 x $2.13 = $78.81
Next, add tips to wages:
$78.81 + $150.00 = $228.81
Next, determine if tips are enough to make up the difference between the federal minimum wage and the tipped minimum wage:
37 x $7.25 = $268.25
Liam needs to be paid at least $268.25 in order to meet federal minimum wage requirements, but he only earned $228.81, meaning that his pay was short.
$268.25 - $228.81 = $39.44
Because Liam’s tips weren’t enough to make up the difference, the payroll manager (or whoever is processing payroll) will need to add an additional $39.44 to his paycheck to make up the difference.
Multiple Pay Rates
Unlike an office or standard administrative role, restaurant employees often have more than one role they can be trained to fill, and depending on what role they are assigned in a given shift depends on their wage during that shift.
This can make payroll even trickier when tipped employees enter the mix because you’ll also have to track tipped wages vs. federal minimum wage in addition to the hours worked.
This is also why it’s extremely important to have employees scheduled and clocked in correctly to ensure that payroll can match everything.
Paying Overtime
There is a special calculation for paying tipped employees overtime. Let’s break down another example:
Background:
- Megan worked a total of 47 hours during the week
- She works in Texas, a state where his tipped wage is $2.13
First, calculate regular pay:
40 x $2.13 = $85.20
Next, calculate standard overtime wage:
$7.25 x 1.5 = $10.88 per hour
Now, subtract the tip credit allowed. In Texas, the tip credit his employer can take is $5.12.
$10.88 - $5.12 = $5.76 per hour for overtime
After working 47 hours, he’s entitled to 7 hours of overtime:
7 x $5.76 = $40.32
Finally, the total pay is:
$85.20 + $40.32 = $125.52
Don’t forget, when figuring out any final pay for the week, you must calculate any tips earned, which will determine whether you need to add an additional amount to an employee's paycheck.
How to Process Restaurant Payroll
It’s not easy to process payroll at a bar or restaurant in-house. But, it can be done. Most would recommend a specific payroll manager be hired to handle all the paperwork, processing, calculations, and additional steps required to properly handle payroll.
But, whether you’re the one actively handling payroll or not it’s important you understand the process. So, let’s go over it.
7 Steps to Complete Payroll
1. Have your EIN and state tax ID on hand
In order to process payroll and the necessary taxes associated with payroll, you will need to have both an Employee Identification Number (EIN) and your state tax ID numbers handy.
Your EIN is used to pay federal income taxes and your state ID is used for state taxes, unemployment taxes, and to provide the state with any new employee information.
An existing business should already have these numbers. But, if you’re a brand new business you will need to have these numbers before you hire any employees.
2. Set up your dedicated payroll bank account
While you should already have a business bank account, it’s widely thought that it’s a good idea to open a second account just for payroll and payroll taxes. This is the account that your employees will get paid from whether they receive payment via direct deposit or with a check.
In addition, this would also be the account which you’ll pay your payroll-related taxes from.
3. Collect all completed tax forms from employees
Any staff you hire is required to complete the following forms in order for you to start paying them:
- I-9: Must be completed no later than the employee’s first day of employment.
- W-4: This should also be completed on your employee’s first day, but you must have the completed form in hand before you begin to process payroll.
- W-9 (for contract employees): Contract employees are required to fill out a W-9, which you will need in order to provide them with a 1099 at the end of the year.
4. Define a payroll schedule and timekeeping system
There are many options when choosing a payroll schedule.
| Pay Frequency | Pay Periods (Annually) | Best For... |
| Weekly | 52 | Hourly Employees |
| Bi-Weekly | 26 | Hourly Employees |
| Semi-Monthly | 24 | Salaried Employees |
| Monthly | 12 | Contract Employees |
Choose the schedule that works best for you and your business because it can become very difficult if you need to change the schedule later.
You also need a timekeeping system for your employees. This can range from a time clock to a spreadsheet, or an automated online timekeeping system. Most modern POS systems have some sort of clock-in and out program that you should be utilizing if available.
Keep in mind that even if your employees are all salaried, you may still need to track their time, depending on the requirements of the state where your business is located.
5. Collect timesheets to calculate gross pay
When the payroll period comes to a close, you will need to collect and review all timesheets. Once this is complete, you can calculate your gross pay.
In order to calculate gross pay for salaried, exempt employees, you will take their yearly salary and divide it by the number of payroll periods in the year.
Calculating payroll for hourly, non-exempt employees is a little different, since you also have to take potential overtime into consideration. Remember that if an hourly employee works more than 40 hours in a single week, any hours worked over 40 need to be calculated as overtime hours.
6. Calculate all necessary deductions
Employers are required by law to withhold certain deductions from an employee’s paychecks:
- Federal income tax withholding based on W-4 information
- Social Security and Medicare taxes (FICA)
- State tax withholding
- Local tax withholding, such as city or county taxes
You would need to check with your state to see if you are required to withhold any other payroll taxes.
To calculate net pay, you would need to refer to the W-4 that your employee provided you, using that information to calculate federal tax deductions based on IRS pay tables.
Don't neglect to schedule your pay schedule to ensure that any direct deposit will be in your employee’s bank account on the scheduled pay date.
7. Pay taxes
Determining and paying any payroll taxes is one of the big reasons why so many business owners tend to turn to payroll software and services instead of attempting to handle payroll themselves, even if they have a dedicated payroll manager.
As the restaurant owner it is you’re responsibility to prepare all reports and remit payment for a variety of taxes that are withheld from employee checks, as well as your portion of any taxes due like:
- Payroll taxes to the IRS
- Federal Unemployment Tax Act (FUTA)
- State Unemployment Tax Act (SUTA)
- Any city, county, or local taxes, as determined by the location of your business
You will also need to check with your state to determine what state forms are required.
Restaurant Payroll Software
At this point we're willing to bet you're more than ready to consider using a payroll software to help manage all this. Here are the top payroll software services right now:
- OnPay (Best Overall)
- Quickbooks (Best for Accounting Integration)
- Gusto (Best for Fast Growth)
- ADP (Best for Customizable Payroll)
- Toast (POS + Payroll Integration)
- Paycor (Easy to Use)
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