A Complete Payroll Guide for Restaurant Owners

An outstanding restaurant management system runs on a well-planned and scheduled restaurant payroll system as its lifeline. As a restaurant business owner, you must have a great understanding of how this part of your business operates. 

Whether you decide to hire an expert to handle payroll or do it yourself, knowing the entire process is essential. Maintaining your entire payroll system allows you to manage your finances and make sure your investments are protected.

To keep your restaurant running smoothly, you must make sure your staff is adequate. You may have to hire multiple bussers, bartenders, servers, dishwashers, managers, cooks, and other positions, depending on the type of your restaurant. Employees have varying work schedules and are paid differently, which makes payroll challenges.

You must find ways to keep your staff satisfied with your management in this industry where employee turnover is always at its peak. The main reason for their loyalty to you could be around a reliable payroll system.

If you want to build a better foundation of knowledge regarding this matter, this article is just the one for you. Learn more about what are the things you need and should consider getting when payroll is the subject. 

Payroll System for Restaurants

First, you must familiarize how this term is utilized in the industry. Answer the usual question, what is payroll? What are the documents needed to build a system out of it? Here’s a brief overview of what you need to learn, as a restaurateur, about this subject.

What is Payroll?

Generally, it refers to the process of paying employees, such as paying salary to employees or paying wages to employees. Putting together payroll requires time, resources, and money for business owners. 

Keeping up with legal compliance while paying your staff into the system can be a challenge. As an owner, you have to consider local regulations concerning tipped wages and employee scheduling. 

On average, restaurant workers stay with their company for one month and twenty-six days, whereas managers stay for approximately four months. You invested a great deal of time into hiring employees for your chosen form of management, only to lose them shortly thereafter.

What are the required payroll records?

To avoid future tax conflicts, you need to properly document every payroll record. Especially the following:

• Payslips – Make sure that the dates for the payment and the total of the wages are identified. Tax and benefit deductions should be included as well. 

• Employee Details – Complete name, contact information, mailing address, and social security number should be recorded.

• Timesheets – The data of the hours worked, breaks, and overtime are needed for proper documentation. 

• Regulated Tax Forms – Find out what are taxes you need to comply with. There are different tax regulating authorities, such as HMRC, and learn who you need to coordinate with.  

Make sure you have a hard copy of every document mentioned. It is safe to keep at least three years of records to be safe, should there be an inspection. It is also wise to secure softcopies of these documents into your drive or dropbox.

What you should know before creating a system for your payroll?

Before you dive deeper into the depths of this subject, there are matters you need to settle first. How do you plan to pay your employees? Will you be employing part-time workers? If yes, what would be the pay difference compared to the regular ones? 

Methods of Employee Payment

Consider offering incentive programs to encourage employees to stick with your team. However, don’t waste your money if you’re just getting started and unsure what to expect.

Regardless of whether your restaurant is fully or partially staffed, there are several ways to pay your staff. You can tap them into receiving cash to receive money directly to their bank account.

To pay your employees, you can choose from four basic methods.

• Hourly – Your employees will receive a payment based on the number of hours they worked. Most restaurant owners deploy this type of payment method. 

• Salary – Employees under the salary method will still get paid the amount on their contract despite not meeting the desired working hours. For instance, if a staff that has worked for only twenty-seven hours, will still receive a thirty-hour payment. 

• Bonus – This method varies with the management. It may be given every quarter, or however the management wants to. Bonuses are often tied with the performance of an employee. The more they perform excellently, the higher the chances they’ll have one. 

• Commission – This is a simple way for your staff to earn money on the side, and is often utilized by businesses in the service and hospitality industry as well. If your staff is working forty-five hours per week, they can be entitled to receive a commission of $250 for that week. 

Employment Status

After deciding which type of payment method you’ll use, it’s now time to let your employees know about their employment status. This is for them to manage their expectations on their first wage.

Based on your location, there are different laws and regulations where you’ll be required to categorize your employees. In the US, here’s a list of how you can classify your staff:

• Full-time employees – They are the ones entitled to full employee benefits. 
• Part-time employees
• Seasonal employees
• Statutory employees – The ones who you can employ on your business but you’re not required to withhold taxes from their salary. 
• Independent contractor

In the UK, they only have three main categories for employment status. This status can help your team determine their basic rights and what are your responsibilities to them as an employer. 

• Worker – Those who are employed under a contract or under an obligation to do services for a reward. Keep in mind that the contract need not be written. The reward could be in the representation of money or kind. 

This is the type of worker that’s entitled to statutory sick, maternity, paternity, paternal, parental, and adoption pay. A restaurant employee’s salary under this category should meet the National Minimum Wage, with protection against illegal deductions.  

The main catch for this category is that staff don’t have protection against unfair dismissal. Freelancers, short-term casual, and agency workers are under this type of employment.

• Employee – These are the types of staff that work under employment contracts. While all employees are considered workers, they have extra employment responsibilities and rights that don’t apply to workers. 

If you classified your team under this category, you are obliged to take off Income Tax and National Insurance contributions from their wages or salary. All the benefits from the worker category are included. 

However, they are protected by law against unfair termination, and they are entitled to legal redundancy pay.

• Self-employed – While these are not the types of employees you’ll have, it is also helpful to know what are the rights of the workers under this category. These are the employees who don’t have a contract from an employee.

Typically, they’d be hired to provide services for a fee for a certain length of time and operate their business. Taxes and National Insurance Contributions are also their responsibility.

Those who are self-employed don’t have employment rights by definition since they are their employers and therefore can choose how much to charge and how many days to take off. 

In some respects, they’re protected by law. Clients must not discriminate against them, and they have the right to a safe and healthy work environment.

Job and Payment Categories

Let’s say that your team now knows how they’re classified as employees, then you have to discuss the rates of their payment. 

• Rate of Payment – The straight-time pay option is available when employees don’t work the entire number of hours they are supposed to during a given working period or their guaranteed wage.

• Bonuses – You choose how much to pay out in bonuses. Performance-based, incentive and production bonuses are a few of the multiple types of bonuses.

• Overtime Pay – Again, you have to know what your National and local Labor Law says according to this subject. 

Steps on How To Create An Effective System for Payroll

Here’s an easy guide where you can follow the steps on how you can build your payroll system for your restaurant. 

Prepare the mandatory payroll documentation

Again, even with the risk of sounding redundant, you must work closely with your national and local labor authority. Every country, state, region, and city has a different legal mandate regarding the requirements for payroll. Avoid putting your business in jeopardy by not complying with one. 

Make sure that you register your restaurant business under your local labor department. Then you may talk to your team, and set up a payment system with necessary withholdings.

After this make sure that your employees, new hire or not, will have complete legal requirements to work as well. You may ask them for their complete personal contact information such as legal name and mailing address. 

Their tax forms should be completed as well. Make sure you know their direct deposit information to avoid conflicts when transferring their wages or salary. It is wise to have a lawyer, HR specialist, or even a fellow restaurant expert to easily know your way in. 

Providing an outline of their basic pay system should give restaurant employees more confidence in a business. This is the main reason why payroll systems and benefits should be outlined in an Employee Handbook. 

Establish A payroll schedule

Many businesses prefer to pay employees every two weeks via a check or direct deposit along with a receipt. You can choose whether to pay your employees on a monthly or weekly basis; it is completely up to you and what works best for your restaurant. 

Typical restaurant workers are paid hourly, except for the management team, executive chefs, and sometimes sous chefs. Due to this, it is imperative to keep track of your employees’ hours without fail, since most paychecks are likely to differ every payday.

Additionally, tipped wage workers and salaried employees both benefit from a pay cycle. Typically, tipped wage workers, such as bartenders and servers, take their tips home in cash when their shift ends.

You should integrate hours tracking into your employee training. While clocking in and out is important, all staff should also keep a record of the hours they worked during a pay period. Then, you’ll have a backup just in case there is a large discrepancy. 

Calculate the payroll cost

One of your most expensive restaurant expenses is labor. Since labor costs mostly represent a percentage of sales rather than a fixed dollar amount, most restaurants track labor costs in this way:

Total Cost of Labor ÷ Total Revenue= Cost of labor as a percentage of total revenue

Depending on the model of your restaurant, the ideal labor cost percentage may differ greatly. Labor cost percentage of twenty-five to thirty-five percent of sales is the standard for most restaurants. However, it could be lower or higher depending on your status in the industry:

• Fast-food restaurants with fewer specialized employees and faster customer payments often use twenty-five percent.
• Casual fast food, which varies with the menu and service style, has twenty to thirty-five percent.
• Service-intensive fine dining restaurants utilize thirty to thirty-five percent of their total sales.

You can keep track of your restaurant payroll ratio to determine your expenses in real-time. This provides you with the ability to make any changes that are needed. Making informed decisions is possible at the moment by tracking labor costs, such as by viewing daily profit and loss statements created by restaurant financial software.

Prepare a calculation for income and deductions

To adhere to the rigorous payroll regulations, you must ensure that adequate time and resources are spent on correctly calculating and dispersing payroll to both employees and contractors. Using the employees’ gross pay as the basis for the calculations for tips, overtime, withholdings, and deductions is regulated both by state, regional, and local regulations.

Moreover, as an employer, you will need to track your deductions on your own. Providing meals to employees may be deductible as part of your employee benefits or as a separate expense, for example. 

Compute the necessary taxes

Taxes will vary based on your business model and location. You must work with an industry expert to ensure that you’ll be including every required taxes to be included. 

In the UK, they have a PAYE system. You are usually required to use PAYE as part of your payroll as an employer. HM Revenue and Customs (HMRC) uses PAYE to collect Income Tax and National Insurance from businesses like you.

When calculating payroll, you must deduct both taxes and National Insurance. Another deduction you may make is repayment of student loans or contributions for pension.

HMRC needs to be notified each payday of your employees’ payments and deductions if you manage payroll yourself. If your employees earn more than £170 a week, your payroll software will calculate how much national insurance and tax settlement you owe them.

If you are eligible to claim any reduction in your tax obligations, you must send another report to HMRC. You must inform HMRC whenever a new employee joins and whenever an employee’s circumstance changes, for instance becoming a director or reaching State Pension age.

HMRC needs to be informed of any expenses or benefits at the end of the tax year.

Document payroll records

You must maintain payroll records for three years according to a general guideline in the industry. The holding of records may be extended to six or more years, however, in case of special circumstances such as fraud or misreported income. 

This information is kept for you by payroll software. Accounting or tax specialists should be able to help you choose the right system for storing and managing your business’s records.

Key Players In The Industry

Already feeling weighed down? If you’re having trouble with your restaurant payroll, don’t be concerned. Payroll services are readily available to you. HMRC has approved them to ensure accurate tax calculations, auto-enrolment, and RTI compliance. 

You can find a complete list of payroll services approved by HMRC here. Here are a few payroll software reviews we wanted to highlight in particular.

Xero

Founded in 2006, it has over two million subscribers to its SaaS accounting software. Small businesses will find many good features in this program, and they can easily customize it to fit their needs. They can directly integrate it into their accounting software, making it more favorable.

Self-service options are available through the Xero mobile app, such as submitting timesheets and applying for leave. Pay runs can be entered into Xero, bulk payments can be made, and payslips can be emailed or printed for employees in line with government regulations. 

With Xero, you can choose from starter, standard, or premium plans with monthly costs ranging from £10 to £30

QuickBooks

The package was developed by Intuit and is marketed by the company. Payslips and pensions are managed by QuickBooks, and they can submit taxes in real-time to HMRC. 

Data from your payroll is integrated with accounts from other departments, so you get the complete overview of your business, whenever and wherever you need it. Just one bill interface is available to pay and understand.

Pricing is currently £6-£15 per month for QuickBooks’ Simple, Essentials, and Plus payroll products.

FreeAgent Payroll

Simple payroll software that is approved by HMRC allows you to produce your paychecks and calculate the national insurance and PAYE contributions directly to HMRC.

Payslips for each employee are automatically generated each month, which can be viewed and edited online and printed as PDFs. You can also generate P60s for your employees at the end of the tax year.

In contrast to our first two competitors, Freeagent charges based on the type of business you run (e.g. Limited Company, Partnership/LLP, or Sole Trader) rather than what services you utilize, and it includes payroll as standard.  

Sole traders can register for £9.50 a month, partnerships for £12 a month, and limited companies for £14.50.

source https://www.etakeawaymax.co.uk/payroll-guide-for-restaurant-owners/