It’s no secret that owning or managing a restaurant is a challenging job in a highly competitive market. After all, you’re responsible for managing thousands of inventory items as well as high turnover staff and customers that can be difficult to deal with. But wait there’s more.

You’re also responsible for payroll, which can be extra complicated because you likely have a combination of hourly, salary, tipped, and non-tipped employees. So, not only do you have to keep your customers happy, you also have to keep your employees and federal, state, and local governments happy.

Here are some useful tips to help you ensure your payroll is compliant with federal and state laws.

Tipped Employees and Wages

Currently, the federal minimum wage is $7.25 per hour. However, your state may have a higher minimum wage so it’s important to do your research. As a restaurant owner or manager, you should know that a portion of minimum wage can be paid through your customer’s tips. But how much? Here’s what you need to know.

• According to the U.S Department of Labor, a tipped employee regularly receives more than $30 per month in tips.
• Federal laws and most states allow employers to take a credit against the minimum wage from the tips that a tipped employee earns.
• An employer may credit up to $5.12 per hour in tips. In other words, in the required $7.25 per hour federal minimum wage, $5.12 can come from tips so an employer is only required to pay $2.13 per hour.

Tips for Taxes and Taxing Tips

If there’s one person you want to keep happy when running a business, it’s Uncle Sam (and his friends at the IRS, state, and local governments). Here’s some critical information that will help you navigate taxes for your restaurant.

• Depending on your state, tips usually count as taxable wages for payroll.  
• Taxable income is governed by TERFA (Tax Equity and Fiscal Responsibility Act) and TRAC (Tip Reporting and Alternative Commitment). Under TERFA and TRAC, an employee has to earn more than $20 in a calendar month in order for their tips to be taxed.
• Employees must report the tips they earn. If they fail to do so, you’ll be affected because you’ll have to pay them additional wages to bring their earnings up to minimum wage. 
• Offering your employees a free meal is a tax-deductible incentive for your business.

Other Recommendations

• The FLSA (Fair Labor Standards Act) prevents you from deducting the cost of uniforms and other materials, or “negligent acts” like broken plates from your employees’ paychecks.
• Payroll can be processed manually. While this may seem like a great way to save money, you may end up paying more in the end because of the amount of time and effort it will take.
• It’s a good idea to hire a payroll service to help you remain compliant with laws and ensure your employees get paid accurately and on time. 

Did you Save Room for (Dessert) Closing Thoughts?

Operating a successful restaurant can be challenging, competitive, and taxing (figuratively and literally).  But, it can also be one of the most rewarding career paths if you’ve found your niche and are willing to dedicate the necessary time and resources.  

If you’re new to the restaurant business or trying to get your payroll into the 21st century, don’t be afraid to take advantage of outside resources such as payroll service companies, tax lawyers or accountants to help you along the way. You’ll be glad you did.