If there is an industry with payroll is as complicated as construction, it would have to be the restaurant industry. Where construction companies constantly wrestle with worker classification issues, restaurant owners have their own set of headaches involving issues like tip income and overtime pay. Needless to say that managing restaurant payroll in-house is no easy task.
Dallas-based BenefitMall is a payroll and benefits administration provider that offers a specialized solution for restaurants. They say that restaurant payroll is complicated enough that an off-the-shelf software solution is inadequate most of the time. They recommend investing in a specialized restaurant payroll package or partnering with a third-party provider that offers a tailor-made solution.
BenefitMall also advises that restaurant owners make every effort to avoid the following four payroll mistakes:
1. Not Accurately Accounting for Tip Income
Those restaurant workers receiving tip income – think servers and bartenders here – do not necessarily have to be paid minimum wage. As long as the combination of hourly wages and average tips work out to be equal or greater than a state’s minimum wage, everything is fine. However, there is an inherent weakness in this system.
Not accounting for tip income accurately opens the door to all sorts of problems. First, it could lead to state accusations of noncompliance with minimum wage laws.
Second, not accurately tracking tip income could open a restaurant up to complaints by employees who believe they have not been fairly compensated. It is nearly impossible to prove proper compensation if a restaurant owner has no idea how much tip income has been earned.
2. Inadequate Record Keeping
Above and beyond the tip income, employers are required by law to keep payroll records for at least four years. It is mentioned here because restaurants are subject to excessively high turnover rates. There is a temptation to discard old records prior to the four-year mark simply because there is little room to store them. Make no mistake though, inadequate record keeping could land a restaurant in trouble with the IRS.
3. Failing to Keep Separate Bank Accounts
Cash flow is critical in the restaurant industry. Restaurants need enough cash to keep their suppliers happy and pay their workers or they risk losing everything. As such, there is a big temptation to open a single bank account into which all daily receipts are deposited. This is a big tax mistake.
Restaurants should maintain three separate bank accounts. The first is a general account that covers most expenses. The other two are tax accounts. One is for sales tax and the other payroll taxes. Daily sales tax receipts should be deposited into the appropriate account right away. Money for payroll taxes should be deposited into that account at the conclusion of every payroll run.
4. Inadequate Time Tracking
Finally, the restaurant business is notorious for asking workers to put in a few extra minutes here and there when things are busy. It is understandable given that serving customers does not always follow a strict timetable. It may take servers an extra 10 or 15 minutes at the end of a shift to make sure the customer walks away happy.
In light of that, restaurant owners need to be diligent about tracking time. They cannot afford to be careless here, because any claims made against them for underpaying workers could result in stiff fines and penalties.
Running a restaurant is not easy. Owners can significantly help themselves by turning payroll over to a third-party provider. If that is not possible, they should at least ensure they avoid the four mistakes described here – at all costs.