Run Your Restaurant and Let Us Run the Payroll
At Payroll Services, we understand the difficulties restaurant owners face in managing their employees and their business. There are a number of complex laws in effect regarding restaurant employees’ wages and tips.
To help you with these rules and manage your restaurant business more effectively, Payroll Services offers a complete, comprehensive system that’s combines payroll, POS integration, HR, employee benefits and workers compensation together in a single system. Our system is designed to help you efficiently manage your restaurant payroll with the accuracy, timeliness and flexibility both you and your employees need.
Restaurant payroll faces a unique challenge in how minimum wage is reported. In many States and Counties, each government has a unique set of minimum wage rules that must abide by. What makes this challenging is that most areas permit restaurants to pay “cash wages” under minimum wage as long as the Employee makes minimum wage with tips. In the case where an Employee does not make minimum wage, the Restaurant must pay the difference through payroll. This is called a minimum wage makeup. Since minimum wage increases have been at the center of attention in many jurisdictions, Restaurants need to be sure that the Employee rates are in compliance with State and Local law. Payroll Services assist Restaurants with this requirement. When an employee makes under minimum wage, our system will ensure that the Employee is paid correctly. If a jurisdiction has additional “carve outs” for minimum wage, such as a training wage, our system can be setup to allow special separation rules to apply for minimum wage. Do you have questions about minimum wage? Contact us.
“Calculating Minimum Wage can be difficult for restaurants due to individual local laws and tips crediting wages paid.”
FICA Tip Credit Reporting – Free Money
Restaurants have a unique carve out in the IRS code which allow Restaurants to receive an Income Tax Credit. An Income Tax Credit is provided for any Social Security or Medicare tax paid on tips above minimum wage. Payroll Services provides this at the end of every year.
How Much Do I Get?
The example below assumes that an employee works 40 hours a week and is paid $2.13 an hour. This employee reported $400 in tips for that week. The Federal wage rate is $5.15 an hour for the purpose of the FICA tip credit. In this scenario, a restaurant owner would save over $1,000 annually for this ONE employee.
Weekly Wages = Hours Worked x Hourly Rate + Reported Tips
40 x $2.13 + $400 = $485.20
Wages Paid at Minimum Wage = Hours Worked x Federal Wage Rate
40 x $5.15 = $206.00
Tax Credit = Weekly Wages – Wages Paid at Minimum Wage x FICA
$485.20 – $206 x 7.65% = $21.36
Annual Savings per Employee = Tax Credit x Payroll Frequency
$21.36 x 52 weeks = $1,110.72 Savings Annually
“The FICA Tip Credit provides restaurants an opportunity of a free tax credit”
Point of Sales (POS)
Every Restaurant utilizes a POS to track sales and in most cases their employees timekeeping and tips. This presents another unique challenge to Restaurant Payroll. Payroll Services can integrate with your POS which will report the hours, tips and variable rates for each Employee. This allows Restaurants to maintain a single system, their POS, which increases accuracy and efficiency. Contact us to see how we can integrate with your POS.
“Integrating a restaurant’s POS with payroll streamlines the workflow process.”
Setting up the POS for Tip Allocation 8027
Certain Restaurants are required to allocated tips in the amount of 8% of their total receipts. These Restaurants are considered “large food or beverage establishments”. The IRS classifies Restaurants as a “large food or beverage establishment” if the following apply:
- Food or beverage is provided for consumption on the premises
- Tipping is a customary practice
- More than 10 employees, who work more than 80 hours, were normally employed on a typical business day during the preceding calendar year.
The IRS provides a worksheet in the instructions for form 8027.
“Making employees sign off on tips at the end of the day is extremely important. “
Tip Sign Off Report form 4070
It is important to remember that even though you allocate 8% of total receipts, that this is a minimum required amount to report per Employee and may not equate to the minimum wage in your jurisdiction. Additionally each Employee should report their cash and charged tips earned after each work session. The 8% allocation rule is designed to ensure something is reported. All Restaurants should require some form of Employee Tip Sign Off whether in their POS or using IRS form 4070. Contact us today to implement a tip sign off report.
“Overtime calculations are different for Restaurants and are not the standard 1.5 x hourly rate. “
Calculating overtime for Restaurant Payroll is very different than standard overtime calculations. In standard overtime calculations we multiple the Employee’s normal rate of pay by 1.5 times. For Restaurant Payroll, Restaurants receive an “Overtime Tip Credit” which reduces the cash wage of overtime. The Overtime Tip Credit can vary from State to State, but Many States use the Federal amount which is currently $5.12. To come up with the Overtime Rate we do the following:
- Minimum Wage * 1.5 – Overtime Tip Credit = Tipped Overtime Rate.
- The overtime tip credit in Maryland is currently set at the Federal amount which is $5.12 and minimum wage is $8.75
- This mean the overtime rate is $8.00/hr ( $8.75/hr x 1.5 – $5.12 = $8.00 / hr)
“Restaurants are notorious for having employees not deposit their $3.00 checks. Restaurants need to understand the unclaimed funds rule.”
The $3.64 Check – Unclaimed Employee Checks
One of the biggest headaches for Restaurants is dealing with Employee checks for minimal amounts. Since Restaurant Employees make most of their money in Tips, the actual take home pay (net pay) is minimal. In many cases Employees do not pick them up or do not cash them. Many Restaurants are left scratching their heads going “What do I do with this $3.64 check”? Most States have “Unclaimed Funds” rules which Employers must abide by. In the case where Employees do not pick up their checks, an Employer is supposed to turn over the funds to the State after a certain amount of time. This is an even bigger headache. Payroll Services recommends that all Restaurant Payroll be ran using Direct Deposit. This prevents the problem of Unclaimed Checks. We do not recommend utilizing our “Secure Pay” (or impounding) service as you will incur additional administration fees for us to refund or report to your State’s Unclaimed Funds division. We also recommend using Payroll Services free Employee Self Service which will eliminate “forgotten” or “left behind” paystubs. Employees can access their paystubs from a mobile device or any internet browser. Let us handle the problem for you. Contact us today.
“Avoid unexpected workers comp bills by using pay as you go workers comp.”
Pay As You Go Workers Comp
Since Restaurants experience uncertainty in the wages that Employees make due to Tips, traditional workers comp can leave Restaurants with big bills at the end of the policy period. Traditional Workers Comp requires the Restaurant to provide an estimate of wages, a down payment and then to make subsequent installments based on that estimate. At the end of the policy period the Restaurant receives a Workers Comp Audit to reconcile what was truly paid versus the estimate. In most cases the estimate is low resulting in a large bill to the Restaurant. Pay as you go workers comp eliminates this problem. There is no down payment required. Every payroll the Restaurant is charged a small amount of premium based on actual wages paid, including tips. When the policy expires the wages reported have been “actual” eliminating the chance for a large bill. This is a free service to every Payroll Services client. Additionally Payroll Services is one of the few Payroll Service Providers in Maryland that can administrate Pay as you Go Workers Comp with Chesapeake Insurance, Maryland’s State Insurance provider. Learn more about workers compensation here.