Payroll is a term we hear often in all businesses and a restaurant isn’t any different. In this article, we’ll be sharing to you a comprehensive guide on how to do restaurant payroll.
Restaurant Payroll Defined
In the simplest of definitions, restaurant payroll is the total amount that a restaurant pays its staff.
Running a restaurant’s payroll will involve several factors. First, you will calculate your staff’s gross pay. Afterwards, you’ll subtract taxes, benefits, and deductions that will equate to a staff’s net pay.
Significance of Doing Restaurant Payroll
Doing payroll for your employees takes a lot of time and resources for restaurant owners. But it is very important that you do it. Why? First, it makes your restaurant business compliant to the law. The last thing your restaurant wants is a lawsuit from your country’s labor department. Running operations is difficult as it is. Fighting a lawsuit while running operations will even be harder.
In addition, it keeps both your restaurant and your employees protected. If your restaurant isn’t running your employees on payroll, they will not have access to the benefits that comes with being part of it.
Benefits by Being Part of Restaurant Payroll
There are numerous benefits to being employed. There are taxes that are paid by employees but there are also taxes and benefits that are paid by the employer.
Here’s a list of each one of them:
- Social security tax
- Medicare tax
- State and federal unemployment tax
- Employee compensation insurance
- Healthcare insurance
- Holiday pay
- Vacation, sickness, and paternity/maternity leaves
- Pension plans
- Post-retirement health insurance
Check out this page to know more about the taxes, costs, and benefits paid by employers in the United States.
Key Components of Restaurant Payroll
There is a lot of key information that’s necessary when doing restaurant payroll. We’ll break it down for you section by section.
Employee Information
Be thorough as possible when collecting employee information. It is important that you know everything about them when they start working for you.
Here’s a checklist of the basic information you should have.
- Employee ID Number
- Full Name (First Name, Middle Name, Last Name)
- Birthdate
- Home Address
- Email Address & Mobile Number
- Social Security Number
- Other necessary Government Issued ID (Taxes, Healthcare, etc.)
Next up, you need to have information related to their salaries.
- Gross Pay. Input their monthly salary or their hourly wage.
- Contributions amount. You need to know how much to deduct for the employee side of their benefits.
- Allowances.
- Loans (if any).
- Deductions (if any).
Time Records
A restaurant’s employees’ time record should be tracked in order to know their salary. There are lots of ways to track your staff’s time records. The most common one being using a time card to either clock-in or clock-out using a buddy puncher. In other cases, an employee can clock-in and out with the signature of the manager.
Restaurants have also begun adopting the use of biometrics for their employees’ time records. The biometrics is usually connected to a software in the backend so you’ll see the time records of your employees in real time. This is helpful when you want to track who comes in early and who’s late all the time.
Payroll Taxes
A restaurant’s payroll taxes are the taxes imposed on both the employer and the employee. The employee portions of the restaurant payroll taxes are withheld from the paycheck. Employees don’t have to pay for it themselves because their employers will take care of it.
The Best Payment Schedule for Restaurants
Now that you’ve understood the basics of payroll, it’s now time to create a payment schedule for your employees.
The most common payment schedule that restaurants use is the bi-monthly option. If you’ve heard of the term “15-30”, this is that schedule. Ultimately, it is the restaurant’s choice on what payment schedule they’ll use. It will all depend on what seems right for your restaurant.
How it works is there’s usually a cutoff for an employee’s time records that goes into the current payment schedule. For example, all the hours worked by an employee from December 11 upto December 25 will go onto the December 30 payroll. To take it further, all hours worked from December 26 until January 10, 2022 will go into the January 15, 2022 payroll.
Ideal Payment Method to Employees for Restaurants
There are different ways to give your employees their salaries. Some options include cash payment, bank deposit or transfer, and payroll bank accounts. Let’s go through each one for you to see which one’s the best option for your restaurant.
Cash Payment
The most straightforward payment method out of all the options. Every time it’s payroll day, whoever is in charge of disbursing the salaries gives out cash as salary to the employee. Simply have the employee sign an acknowledgement receipt that they’ve received their salaries.
The downside to this type of payment method is that you have to physically go to the bank every payroll day to withdraw cash. Not to mention that having lots of cash on hand has a huge risk of theft.
Bank Deposit or Transfer
This type of payment method will have the employer directly deposit the money to their employees. The payment will go from the restaurant’s corporate bank account to each employee’s personal bank account.
In order to do this, the restaurant should collect the banking information from each of their employees. If this is a prerequisite for employment in your restaurant, make sure you include this information during interviews conducted to potential new hires.
Payroll Account
We believe that this is the best option to use when choosing a payment method for your employees. A payroll account is a separate bank account that businesses use to pay their employees.
This is a good solution to restaurants since operations incur lots of expenses. The last thing you want to happen is you pay a huge amount for repairs only to forget that it’s already payroll day. By having a separate account for payroll, it gives you better visibility of your books.
Methods to Calculate Payroll for Restaurant Employees
First and foremost, calculating payroll for your employees means knowing how to calculate their gross pay and net pay. Subsequently, it also gives you the capability to calculate the overall payroll cost of your restaurant.
Gross Pay of Employees
The gross pay of an employee is the total amount of work to be paid to the employee. Taxes and other deductions are still part of an employee’s gross pay.
For hourly workers, the gross pay is calculated by multiplying his or her hourly rate by the total number of hours worked during a payroll cutoff period. Holiday pay, night differential pay, and overtime pay are included in the computation of an employee’s gross pay.
For example, Anna is an hourly employee at Taco Bell. She has an hourly rate of $15 and works 9 hour shifts with 2 rest days in a week. For this cutoff, she worked a total of 93 hours with 3 hours coming from overtime. In the United States, overtime pay rate is your hourly rate multiplied by 1.5. Make sure to check how much these rates are for your country or state as it varies.
1st step: Multiply $8 by 90 hours to get: $720
2nd step: Multiply $8 by 1.5 ($12) and proceed to multiply her overtime hours, 3: $36.
3rd step: Add both regular and overtime hour pay totals: $756
On the other hand, salaried workers’ salaries are easier to compute. Simply take her annual salary and divide by the number of payroll cutoffs in a year. If you’re using the bi-monthly option, then it’s 24. If it’s the weekly option, it’s 48.
Net Pay of Employees
This is the amount that an employee actually receives in their paycheck. Calculating for net pay is a little trickier with all the taxes involved. Let us show you how to do it step-by-step. Note that this is the process for the United States. But the steps shouldn’t differ from other countries.
Step 1: Take an employee’s gross pay and start from there.
Step 2: Minus the federal income tax and withholding tax from an employee’s gross pay. The income tax will depend on the information they provided in the W4 form.
Step 3: Minus state withholding tax from the total in Step 2. Every state has a different tax rate, make sure to check yours in order to correctly compute an employee’s net pay.
Step 4: Minus social security tax and medicare tax from the total in Step 3.
Step 5: Take out any loans or deductions an employee might have during that pay period and subtract from the total in Step 4. This is the net pay of your employee.
Restaurant Payroll Percentages: Everything You Need to Know
Aside from food cost, payroll cost is one of the line items you’ll see in your profit & loss statements that’s quite high.
A key metric that restaurants look at is prime cost. It is the total of your cost of goods and your payroll costs. It is important that this number is kept as low as possible to have increased profitability in your restaurant.
How Much Should Restaurant Payroll Be? Ideal Payroll Costs and Percentages for Restaurants
We have been asked this question a lot, “What percentage of sales should payroll be to a restaurant?”
According to an industry expert we’ve talked to recently, restaurants should aim for 25-35% average restaurant payroll percentage to total sales as its goal. However, the percentages will differ depending on what type of restaurant you operate.
Quick service restaurants do not require as many specialized employees compared to full service restaurants. The goal for QSRs is to have a 25% payroll cost while FSRs should aim for 30-35% payroll cost. The difference between them is FSRs have more specialized employees such as chefs, bartenders, and mixologists. This is the main reason why they’ll have higher payroll costs compared to QSRs.
How to Calculate your Restaurant Payroll Percentage
Payroll cost is where all the calculations of your gross and net pay will lead to. The idea is simple: you take a certain period and total all your payroll costs – this will be your labor cost for that period. The most common periods restaurants use are monthly, quarterly, and annually. Computing for labor costs daily might be too tedious and unnecessary.
Calculating labor cost percentage is easy. We’ll show you in 3 easy steps.
1st step: Find out how much your total payroll cost is for a certain period.
2nd step: Get the total sales of your restaurant for that same period.
3rd step: Divide the total payroll cost by your restaurant’s total sales during the period. Multiply by 100 and you’ll get your payroll cost percentage.
Let’s set two examples for you so you can have a better illustration.
For the month of August, the total payroll costs of XYZ bar is $4,000. During the same month, XYZ bar totaled $16,000 in revenue. We simply divide $4,000 by $16,000 and multiply by 100. The 25% that was calculated is your payroll cost percentage for the month of August.
For the year 2019, payroll costs for Royal Indian Curry House reached $75,000. Sales total for that year was $240,000. Again, we divide $75,000 by $240,000 and multiply by 100 to get our payroll cost percentage. Royal Indian Curry House had a payroll cost percentage of 31.25% during 2019.
What is Restaurant Payroll Software? Key Features and How to Choose
Restaurant payroll software is a complete solution that will make paydays stress free for employers. These solutions can compute thousands of employees’ pay computations in a matter of minutes.
There’s a multitude of features in a restaurant payroll software that you should look at. First, it should have a time & attendance feature. This feature will help you capture time records, leaves, and attendance online.
Second, an electronic bundy clock feature will let your employee clock in using a tablet or a pc.
Third, a payroll engine that provides customizations to allowances, basic pay, payroll calendars, bonuses, commissions, loans, and more. Lastly, look for a payout solution that’s linked directly to your payroll.
How to Choose a Restaurant Payroll Software for your Restaurant
Choosing the right payroll software is one of the most important decisions you’ll make for your restaurant. Before deciding on anything, you must first examine the size, location, and pay structure of your restaurant.
Look for a payroll software that has the core features we’ve mentioned above. In addition, the user experience of the app should also be very good. Having all of these features combined will ensure smooth payroll operations for your restaurant.
3 best restaurant payroll software
The restaurant industry is known for its high churn rate which means restaurant owners/ managers are forever on the lookout for and training new staff members. One of the best ways to reduce employee churn rate and retain employees is to pay them on time. For this, you need to optimize your restaurant payroll process.
Restaurant payroll processing can be a task since restaurants have a dynamic work culture and work timings often get extended. But with the help of a good payroll software for restaurants, it becomes a cake walk. It simplifies the process of paying your employees so they always receive accurate salaries on time.
Listed below are the 3 best payroll systems for restaurants:
1. QuickBooks Payroll:
One of the most widely used payroll software, QuickBooks Payroll is a cost-effective option. Starting at just $35 per month, it has multiple plans and also comes with a free trial. Its UI is very easy to navigate which makes the whole process very quick and hassle-free.
QuickBooks Payroll includes rich features like auto payroll, automated tax filing, direct deposit and employee portal. Along with its in-built reports, you also have the option to customize reports that are relevant to your business. You can use QuickBooks Online Accounting in addition to QuickBooks Payroll to manage all your restaurant finances.
2. Tally:
When it comes to the Indian F&B industry, Tally is the most preferred payroll software for restaurants business. This is because of its simplicity and the comfort of using it for several decades. Tally is not only known for its error-free automation of the payroll process but also quick integration with accounting softwares.
The best part about Tally is that it allows custom or user-defined criterias for all kinds of calculations. The user can define their own deduction criteria in Tally. Apart from automated and timely employee payroll processing, it also provides employee-specific costing reports.
3. Gusto:
Gusto makes it very convenient to process restaurant payroll with its various features. You can track your employee’s time and attendance, calculate salaries, file taxes, manage employee benefits, and much more. Gusto is ideal for restaurants with less than 100 employees.
Just like QuickBooks Payroll, Gusto offers auto payroll and tax filing. With Gusto’s automated reminders, you’ll always be aware of tax filing due dates and any changes in tax laws in your state. It also has multiple payment plans catering to small and large establishments alike.
Please note: EagleOwl does not offer payroll services but seamlessly integrates with all payroll and accounting solutions.
Conclusion
Payroll is one of the most challenging responsibilities for a restaurant. Compliance with the law is necessary while also accurately computing for salary requires lots of resources and knowledge. By following the restaurant payroll guide we shared above, we believe you’re one step closer to understanding its basic elements and responsibilities.
Doing restaurant payroll is a continuous task. It is important that payroll is always sent out accurately and in a timely manner. Word gets around quick and if you don’t pay your employees on time, the community will surely hear about it. As long as you understand the basics of payroll, computing it manually or via payroll software shouldn’t matter.
Learn how to grow with EagleOwl. Our restaurant management system can help optimize your finances and increase your restaurant’s net profit by at least 25%. Contact us now to schedule a free demo!