August 2nd, 2012 by Michael Busch
All payrolls in all industries have their own unique quirks. But after working with the restaurant industry for over 25 years, I can tell you, with no hesitation whatsoever, that restaurant payroll is different from that of any other business: it?s more complex, and has more variables, and there are more opportunities for employers to get it wrong.
I?ll explain by highlighting three elements of most typical business payrolls, and then show how restaurant payroll for each of those elements is exponentially more difficult to navigate.
Collecting data and figuring gross pay. For basic payrolls with hourly employees, the process is pretty straightforward: you take hours worked and calculate gross pay by multiplying by an hourly rate (1.5 times for overtime).
Not so for restaurant payroll. Collecting data for restaurant employees is far more complex, for a number of reasons. One reason is the sheer number of employees. The hospitality industry is very labor intensive. Chances are, there are more employees working in a typical restaurant, per-square-foot, than in most other industries. But counting heads is one thing. Consider all of the factors that go into calculating gross pay for all of those people. First, there are individuals working at multiple rates of pay (some hours worked as a hostess at one rate and some hours worked as a server at another rate). Then there?s the issue of calculating overtime for these individuals with all these different pay rates. Also, how do you factor tips into determining gross pay? And then there?s the issue of sub-minimum wage rates when you deduct a tip credit from a tipped employee?s hourly rate. Let?s not forget about meals and lodging. Are they considered compensation that needs to be factored into the gross pay equation?
Calculating taxes. What makes calculating taxes unique to restaurants? Two words: tipped employees. And there are a range of reasons why this is unique; here are two.
Imagine you own a business that employs people who receive compensation from you as well as from another party. Then imagine that only you are responsible for calculating, and paying, taxes on the compensation from BOTH sources! That, in a nutshell, is what restaurant owners face when it comes to calculating taxes, not just on the wages they pay their employees, but on the tips those employees receive from customers as well. The tax laws, as they are currently written, require restaurant employers to calculate withholding taxes even on wages they didn?t pay. For example, the employer has to pay Social Security and Medicare contributions on tips, which in effect are wages paid by somebody else!
Then there?s the matter of the ?negative check.? Tipped employees usually receive a relatively low hourly wage, with the understanding that they will make it up on tips. But as the employer, you still have to deduct taxes from each paycheck. So if an employee earns wages of $100 and declares $400 in cash tips, and his or her payroll taxes total $150, then that employee does not have enough wages to cover the full amount of taxes due. This results in a ?negative check? and it is not uncommon in the restaurant industry. But employers never want to end up in a situation where they have to issue an employee a negative check, because it?s terrible for employee morale. Just imagine telling your employee that on payday they have to pay you! The situation is normally resolved by the employer adjusting the employee?s withholding to bring the net amount of the check up to zero. But there?s more: at the end of the year, the consequences of those zero checks could very well be that the employee owes thousands of dollars in taxes because of all the adjustments that had to be made to avoid those negative checks.
Issuing checks. Today, a majority of employees paid outside the restaurant industry are paid electronically via direct deposit to a bank account or to a paycard: quick and easy.
But, in the restaurant industry paying employees electronically is not the norm. Whether it is the employers who choose not to offer it, or the employees who choose not to take advantage of it, the fact is that 4 out of 5 restaurant employees receive paper checks. That?s 80 percent! I think much of this can be chalked up to cultural idiosyncrasies. In some cultures, there is a need to hold a tangible object in one?s hand that has a monetary value attached to it. There are also, I believe, generational reasons for this. ?Old school? employees still want that paycheck every week. But whatever the reason, the added burden of generating and reconciling paper checks every week is just another unique trait of the restaurant industry that employers have to contend with.
Let me add one more point: As if the unique qualities of restaurant payroll processing aren?t enough, the Labor Department considers the restaurant marketplace a fertile ground for collecting penalties for non-compliance. You could say restaurants have a target on their back when it comes to wage and hour compliance. Department of Labor audits have become a regular occurrence that virtually every restaurant owner has to face. And if it is not the DOL it is an aggressive attorney trying to put together a class action law suit. Not complying with any of the many rules and regulations surrounding minimum wage, overtime, spread of hours, etc. could result in fines and other sanctions.
That?s where Valiant?s Restaurant Division comes in. We?ve spent decades developing technology solutions specifically for the restaurant industry. Our software programs make it easy to collect data, calculate withholding, and pay your employees while remaining compliant. And they?re not ?off the shelf? products. They can all be customized to any restaurant?s specifications.
You didn?t get into the restaurant business to wrestle with data collection every week. And you don?t have to.
If you?d like more information, fell free to contact me directly: Michael Busch at Valiant.
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Source: http://www.valiant.com/uncategorized/the-consultant%E2%80%99s-corner/
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