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Restaurant Payroll: The Ultimate Guide For Business Owners

Calculator cash and a notepad

Restaurant payroll is one of the largest expenses your business will have to absorb. Let it get out of hand and your bottom line will suffer. But there is a way to control your labor expenses so your business is always in the black.

In this article, the restaurant-management experts at Sling discuss all aspects of restaurant payroll so that you can keep a tight rein on the outlay that can make or break your business.

What Is Restaurant Payroll?

Person Counting their restaurant payroll money

Restaurant payroll — or just payroll by itself — is an umbrella term that refers to multiple aspects of your business, including:

  • The group of individuals you employ (as in, “Chuck, Sarah, and Casey are on the payroll.”)
  • The wages you pay to employees during a given period (as in, “Payroll increased 5% this quarter.”)
  • The act of calculating and distributing wages (as in, “Tomorrow, I’ll spend the whole day doing payroll.”)

For this article, we will discuss restaurant payroll according to the third definition from the list above: the process of calculating and dispensing wages to your employees.

Setting Up Restaurant Payroll

a pen and calculator for setting up restaurant payroll

1) Get Your Paperwork In Order

One of the first steps in setting up restaurant payroll is to get your federal, state, and local paperwork in order.

This includes such requirements as:

  • Federal Employee Identification Number (EIN)
  • State tax I.D. numbers
  • Completed employment forms (e.g., W-4 and I-9)
  • A plan for when you will pay employees (also known as a payroll schedule)
  • A separate bank account from which to pay wages and taxes

It doesn’t matter if you decide to do payroll yourself or hire a payroll service to do it for you, you need all of this information on file before you cut your first check.

2) Implement A Tip Reporting Process

Setting up restaurant payroll also requires that you implement some sort of tip reporting process.

You may choose to set a creative tip jar on the counter or institute a tip pooling policy.

Regardless of the process you choose, you’ll need to keep a record of tips received so you can produce an accurate restaurant payroll.

3) Set Up Multiple Pay Rates If Necessary

Waiter holding a salad and appetizer dish in one hand

Restaurant payroll is unique in that employees often fill more than one position during a pay period. And your business will usually pay those jobs at different rates.

For example, a host or hostess ($12/hour) may fill-in for a server ($8/hour + tips). Or a food runner ($9.50/hour) may fill-in for a busser ($8/hour) if you run into a no-call, no-show situation.

For those eventualities — and for accurate restaurant payroll — you’ll need to establish multiple pay rates and keep track of who worked what position and for how much.

4) Calculate Restaurant Payroll Properly

Restaurant payroll is easy to figure when you’re dealing with an hourly calculation.

The formula is just hours worked multiplied by the wage for that position (35 hours in a week X $10/hour = $350).

But things can get more complicated when you factor in the multiple pay rates mentioned in the previous section, tips, and even salary vs. hourly pay.

Make sure you’re familiar with the equations that apply to the various pay structures within your restaurant payroll.

5) Learn How To Calculate Overtime

Overtime pay has its own set of equations that you’ll need to know to calculate restaurant payroll.

For any hours worked over forty, you’re required to pay the employee time-and-a-half (or 1.5 times their normal hourly wage).

That part is fairly straightforward, but it gets complicated very quickly when you factor in tipped wages and other pay structures.

Be sure you know how to calculate overtime properly so your business doesn’t find itself in legal trouble later on.

How To Run Restaurant Payroll

Timeclock to track hours for restaurant payroll

1) Collect Timesheets

Once you’ve got your restaurant payroll process set up and ready to go, it’s time to start crunching the numbers.

The first step is to collect timesheets so you know how many hours each of your employees worked.

Your timesheets may be of the paper variety, the more modern punch-card type, or the cutting-edge digital style.

The easiest of those to use is the digital timesheet because the numbers often transfer directly into the software you’ll use to run the calculations to determine the final paycheck.

2) Calculate Gross Pay

Gross pay for your restaurant payroll simply means the total amount of wages before you take out any taxes or deductions.

Gross pay is the basis for all the other calculations you’ll perform before you reach the net amount that you’ll write on each employee’s check.

3) Subtract Voluntary Pre-Tax Deductions

When it comes to restaurant payroll, pre-tax deductions are those that your employee chooses to withhold from their paycheck.

These include such things as:

Once you add up all these pre-tax deductions, subtract them from the employee’s gross pay before moving on to the next step.

4) Calculate Taxes Due

Taxes sign in front of a pile of cash

Taxes are a big part of restaurant payroll.

Calculating them incorrectly — or skipping them completely — can mean significant legal trouble and hefty fines down the road.

Talk to a labor attorney or accountant to make sure you’re in compliance with any and all local, state, and federal tax laws.

5) Run The Numbers To Determine Net Wages

The formal definition of net wages as it applies to restaurant payroll is:

The amount of money left after you subtract mandatory expenses

Mandatory expenses include such numbers as:

  • Pre-tax deductions
  • Local, state, and federal taxes
  • Outlays
  • Withholding
  • Losses
  • Tip credits

If you visualize gross pay as a big pile of money, this step (and the previous two) is you removing expenses a few dollars at a time as required by law.

When you’ve removed all the mandatory expenses from the pile, the rest belongs to the employee.

Net pay, then, is the final amount each employee receives on payday.

6) Cut Checks And Distribute

The only thing left to do in your restaurant payroll is cut checks and distribute them to your employees.

This may consist of having your employees report to a specific place to pick up a physical check, having someone walk around and hand out checks to each person, or depositing the net pay directly in the bank.

However you choose to do it, this is the last step of your restaurant payroll.

Control Restaurant Payroll With Scheduling

Sling app for restaurant scheduling

One of the best ways to control restaurant payroll — by far, one of the largest expenses your business will face — is with scheduling.

Effective scheduling gives you the ability to control all aspects of your workforce management so you can stay within your labor budget and maximize profits.

To do that, though, you need the help of a powerful piece of software. You need Sling.

The Sling suite of tools gives you the power to optimize your labor spending — including regular pay, overtime, salary vs. hourly pay, payroll reporting, and every other aspect of payroll accounting you can think of.

And the Sling allows you to do all that and more as you build the schedule in real time so there’s less back-and-forth trying to keep your restaurant payroll under control.

Sling even lets you set wages per employee or position and maximum expenditures per shift so you know exactly what you have to spend. Sling then provides you with alerts when you’re about to exceed the limits you’ve set.

And that’s just the tip of the Sling iceberg.

Other features include:

  • Up-to-date employee availability and time-off requests
  • Notifications when you overlap shits or double-book an employee
  • The ability to let your team members sign up for shifts they want to work
  • Cloud-based distribution and access
  • Built-in time clock for accurate restaurant payroll
  • Powerful communication features
  • Task management so everyone stays busy
  • And much more…

With Sling, you’ll have unprecedented command of your employee scheduling so you can then fully control your restaurant payroll and keep your business in the black.

For more free resources to help you manage your business better, organize and schedule your team, and track and calculate labor costs, visit GetSling.com today.

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