Running payroll for a restaurant isn’t easy. Between managing inventory, keeping customers happy, and staying compliant with health and labor laws, payroll can feel like one more complicated system on your plate. But payroll mistakes in restaurants can quickly turn into compliance issues, unhappy employees, and even financial penalties.
Fortunately, with the right systems (POS, payroll software, and time tracking) and the right people (your accountant, payroll manager, or payroll provider), you can avoid common restaurant payroll pitfalls. The key is understanding how your systems interact and who is responsible at each step.
1. Restaurant POS System and Payroll Integration
Your POS system is a vital tool for tracking time, revenue, and tips. If it isn’t properly integrated with your payroll system, you risk payroll errors that can cause compliance problems.
Best practices for POS and payroll integration:
- You will need to work with the POS vendor to configure tip pooling and either manage your calculations independently in a spreadsheet or work with a payroll company that can help.
- If you choose to work with a payroll company, make sure you can provide them with a clear breakdown of hours, overtime, and tips. The payroll company will not manage the tip pool.
- Use your POS system to monitor daily hours and compliance with overtime rules. Payroll software alone usually won’t provide this level of detail.
2. Restaurant Payroll Software and Compliance
Your payroll software helps you pay wages accurately and stay compliant with state, federal, and local laws. But ultimately, you are responsible for payroll compliance at your restaurant.
Best practices for restaurant payroll software:
- Onboarding a new hire in your payroll system is much more comprehensive than POS onboarding, so it’s often a best practice to start with payroll. This also ensures DOL compliance for W-4, I-9, signing handbooks, etc, prior to the first day of payroll, thereby reducing the risk of employees working and needing to be paid without your restaurant having the necessary paperwork.
- States and municipalities are increasingly enacting paid leave legislation, and it’s your responsibility to know and follow the law. Once you have drafted a paid leave policy that is in compliance with the law, your payroll system can be a great management tool.
- Similarly, it is your responsibility to pay employees the correct minimum wage and understand whether employees aren’t tipped enough to reach the minimum wage. Strong payroll vendors can flag this and notify you, but ultimately, compliance is the employer’s responsibility.
- Some states require “Spread of Work” pay or similar policies to ensure employees are paid a premium when they work over 10 hours in a day. You own responsibility for staying compliant with these types of laws, but a payroll company can help you configure your payroll system to apply these premiums automatically.
3. System Integration and Payroll Processes
Poor system configuration or a lack of parity between systems is a common root cause of many payroll problems we see in the restaurant industry.
Best practices for system integration:
- Always keep your payroll system in sync with your timekeeping or POS system. You may think that you’ll save time by making small adjustments only on the payroll side, but you almost always end up spending more time troubleshooting and cleaning up past quick fixes when your systems are not in parity.
- Be sure to set up your departments and pay rates in your timekeeping or POS system, and ensure they are mapped to your payroll system. Pay rate complexity is a given in the restaurant space – take proactive steps to solve for this challenge before it gets out of hand.
- Some vendors, like PaySteady, can work with your accountant to map payroll categories to your general ledger. If you’re interested in that level of visibility into your business, be sure to start the conversation now.
4. Multi-State and Local Restaurant Payroll Tax Compliance
Multi-state and local tax compliance issues are not unique to the restaurant industry, but they are more prevalent in restaurants than in other businesses. Poor planning and incomplete registration with various state and local tax agencies will lead to consistent headaches down the line.
Best practices for restaurant payroll tax compliance:
- As an employer, you have the obligation to ensure that your business is registered for state income tax (SIT), state unemployment insurance (SUI), and any applicable local taxes. These accounts are tied to your business and you hold the ultimate responsibility of keeping them in good standing.
- Once you’re registered, be sure to input your state and local account numbers into your payroll software. When configured correctly, payroll software can be a big help in this area by withholding the appropriate taxes and submitting payments and filings to the appropriate state and local tax agencies.
- Some vendors, such as PaySteady, can help you create these tax accounts and handle any tax notices you may receive. Be honest with yourself about whether you or someone on your team will take ownership of this process or whether it’s best to seek outside help. Note that your accountant will likely not be able to help in this area.
Conclusion: Restaurant Payroll Best Practices
Restaurant payroll requires careful integration, compliance checks, and proactive processes. By setting up your POS, payroll system, and tax registrations correctly, you can avoid the most common payroll challenges for restaurants.
If you need help, a payroll company like PaySteady is often a better solution than your accountant for restaurant payroll compliance and system integration. As specialists, we’ve helped hundreds of restaurant owners simplify payroll, stay compliant, and save time.
This Guest Article was written by Daniel Rafeedie. Daniel is the CEO and founder of PaySteady, an outsourced payroll provider that specializes in helping small businesses simplify and automate their payroll and HR operations. Daniel started his payroll career at ADP before founding PaySteady to combine smart software assessment and implementation with concierge-quality customer support. Learn more about how PaySteady works with restaurants or contact Daniel directly at daniel@paysteady.com.
