Tackling Common Restaurant Payroll Challenges

While running a restaurant can be rewarding, the job can be daunting and stressful. Managing finances and staying on track of payroll often comes with unique challenges. 

Understand Worker Classification

A  common mistake businesses make is improperly classifying employees as independent contractors. There are key differences between employees and independent contractors and misclassification can lead to legal issues and costly penalties for the business. Restaurant owners should be aware of the Department of Labor’s (DOL) published rule from January of this year which took effect March 11, 2024, and changed how the DOL analyses worker classification under the Fair Labor Standards Act (FLSA).

Handling Payroll Taxes 

Restaurant owners must also be aware of taxes they need to withhold from their employees’ paychecks. There are many factors to consider when it comes to employee tax withholdings at the federal, state and sometimes local level. Each tax agency has its own filing process and filing frequency that employers must understand and adhere to as part of their payroll process.

Employees must report their tips accurately and the employers need to ensure reports are precise for tax purposes. 

Employers may qualify for FICA tip credits. Applying for these credits can be a complex process, but it’s important for reducing tax liability for business owners. 

Ensure a Timely and Orderly Payroll Schedule

Keeping a timely and orderly payroll schedule helps to ensure payroll accuracy. Investing in time-tracking software that ensures accurate timekeeping and proper recordkeeping with employees’ hours is helpful for the payroll process. This also reduces the time and energy owners are spending on payroll so they can focus on other tasks. Staying on top of your payroll schedule will eliminate errors and disputes with employees. 

Continue to Stay Informed of Laws and Regulations

To ensure compliance, it is essential for restaurant owners to stay up to date on the latest ever-changing payroll laws and regulations. 

Employers must adhere to minimum wage regulations, regardless of whether their employees receive tips or not. 

With many young workers employed in restaurants, compliance with child labor laws is crucial. Employers must know the federal and state laws and comply with the strictest regulations to avoid violations. 

Employers must understand the FLSA regarding exempt vs. nonexempt employees to avoid misclassification. On July 1, 2024, the US Department of Labor’s final overtime rule increases the salary exempt level to $844 per week. Most salaried employees who earn less than this amount will become eligible for overtime pay under the final rule.

Many states have different laws, especially when dealing with your employees’ meal and rest breaks as well. Restaurant owners must stay informed about these laws, as it is critical to accurately pay your employees. Failing to do so can lead to costly penalties. 

Given the importance of payroll to both your employees’ satisfaction and your business’s compliance, partnering with a payroll professional or service provider is a prudent decision that you can’t afford not to make.