Restaurant Accounting: A Step by Step Guide

Keep in mind that if your policy allows sharing of tips among all employees, you are required to pay all of your employees full minimum wage, not the reduced wage. If you choose not to institute a tip policy, your employees will simply retain their own tips. If tipped employees work overtime, there is a special calculation you will need to do in order to pay them properly. It’s important that you are able to track how many hours Sam works as a cook, and how many hours he works as a floor manager. Running payroll well is essential for ongoing restaurant success and stability. It can be intimidating, but with the right information and tools, you can take charge of your payroll processes, get compliant, and reclaim time you can pour back into growing your business.

Restaurant payroll doesn’t have to be difficult

• The restaurant industry is known for a high turnover rate, and this certainly can affect your payroll.
• This means employers may pay employees as little as $2.13 per hour as long as the tips made per hour can bring the employee’s total hourly earnings to at least $7.25, which is the federal minimum wage.
• Perhaps the most important piece of said legislation is the Fair Labor Standards Act (FLSA).
• We created Payroll Marketplace as a place to help get payroll and workers compensation coverage approved in 24 hours without the need for large deposits.
• Here are some of the most common federal payroll reports for businesses of all types.

With labor laws on age, wage, overtime, and time off—many of which vary between New York State and New York City—it’s easy to overlook a law or two. However, these oversights are rarely excused and can cost your restaurant big time. Au Bon Pain was fined $1.2 million for violating NYC’s Fair Workweek Law, which requires employers to set schedules 14 days in advance.

Recommendations for Restaurant Accounting Software

Some restaurants also include management salaries as part of their labor costs although conventions vary across the industry, especially for restaurants that are closely managed by their owners. According to the National Restaurant Association, labor costs for a full-service restaurant average about one-third of sales. Because labor costs represent such a significant expense, the financial survival of a restaurant may depend on keeping personnel expenses under control. Local mandates may include requirements about predictable pay, regular scheduling, or employee breaks.

How To Manage Restaurant Payroll

Gross pay is the total sum an employee earns over the course of the pay period. For hourly employees, this is found by multiplying the base wage by the number of hours worked, while for salaried employees, it’s found by dividing their annual salary by the total number of pay periods in the year. payroll for restaurants Processing restaurant payroll is not just a matter of how employees are paid, but also when they are paid, which involves setting up a payment schedule. You can’t run a restaurant without employees, which means processing restaurant payroll is an integral part of running a food service business.

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• The IRS considers tips to be taxable income and the total income from tips reported to an employer must equal at least 8% of the business’ total receipts for that pay period.
• Whether running a small bakery or a fine dining restaurant, you need a POS system for cash management, sending or printing receipts, inventory management, order management, and back-office reporting.
• You’ll have access to the metric that matter and be able to reconcile books quickly and efficiently.
• Because labor costs represent such a significant expense, the financial survival of a restaurant may depend on keeping personnel expenses under control.
• This method allows businesses to record their generated income when cash is received from services rendered or paid for expenses and costs.

The ideal restaurant accounting software for restaurants should offer robust reporting features, be easy to use and allow you to access data anytime, anywhere. Keeping these books for your restaurant straight, current, and accurate is crucial to the financial success of your business. You can use restaurant accounting software to manage all your bookkeeping needs, such as creating professional invoices, managing cash flow, and tracking time. To find an employee’s net pay, simply subtract all withholdings, garnishments, federal, state, and local income taxes, and federal Social Security and Medicare taxes from the total gross pay. One of the reasons that running payroll for restaurants can become complicated is because of the complex rules around paying tipped employees.

How to calculate overtime

At the end of the year if the employee has not claimed 8% of gross receipts, the business will allocate tips to the employee in box 8 on Form W-2. Also, tip income is subject to the additional Medicare tax for higher income employees. You’ll need to start by withholding the additional 0.9% Medicare tax when employee compensation reaches $200,000. However, understanding the typical percentages will provide you with an important starting point for evaluating the financial performance of your small business. Track your consumables and supplies to calculate the value of the food you have in stock and determine the average daily inventory costs. Choose a system that is easy to use for employees and customers that can seamlessly tie in with your accounting software.

Rules and regulations around tipped employees

Calculate Taxes Due