This guide about how to do payroll will teach you – restaurant owners, operators, and managers – the in’s and out’s of calculating, distributing, and processing payroll for your employees. The following 6 steps outline the restaurant payroll process from beginning – collecting the necessary legal paperwork from staff – to end – storing payroll and tax related documents after conducting payroll in your restaurant.
This guide is purely informational; for the most accurate, reliable payroll and payroll tax related advice, consult an accountant or contact the Internal Revenue Service (IRS) directly.
Since restaurant payroll ranks high on the list of weekly priorities for restaurant owners, operators, and managers, it’s a good idea to make sure you understand the process from start to finish in order to stay legally compliant.
This guide is purely informational; for the most accurate, reliable payroll and payroll tax advice, consult an accountant or contact the Internal Revenue Service (IRS) directly.
Now that your restaurant is legally allowed to employ staff and pay them wages, it’s time to decide on your restaurant pay cycle.
When it comes to deciding on an employee payment cycle, most businesses choose to pay their employees every two weeks — either with a check or via direct deposit (that comes with a printed receipt). But every business is different: Some pay their employees once a month or weekly; the choice is entirely up to you and what makes sense for your restaurant.
It’s important to note that a pay cycle applies to the base wage that tipped wage workers are paid as well as salaried workers. Tipped wage employees — like servers and bartenders — take home their tips at the end of a shift, often in cash.
Most positions in a restaurant are paid hourly, with the exception of management, executive chefs, and sometimes sous chefs. This is why it’s crucial to keep track of every employee’s hours without fail, because chances are, most paychecks will fluctuate every pay period.
It’s good practice to incorporate hours tracking into your staff training — clocking in and out is crucial, but encourage all staff to also keep a personal log of their hours worked in every pay period. This way, if there’s a big discrepancy for whatever reason, you’ll have a backup to check.
A direct deposit is a payment method you can use to pay your employees without them having to go to the bank to deposit a check (or use the online deposit functionality in their banking app). As the name implies, the money goes directly from your company’s bank account into the employee’s bank account.
To facilitate a direct deposit, restaurant owners, operators, and managers need to collect the employee's ACH billing information. This includes their account number and their bank's unique wire-routing number, typically available on their online banking websites or on the bottom of personal checks associated with a bank account. For more on how to set up direct deposit, check out The Balance’s page on the subject.
The team at MyAccountingCourse.com defines it as follows: “A payroll bank account is a separate checking account that businesses use exclusively to pay employees their payroll checks." It’s an attractive solution, because running a restaurant involves a lot of expenses, including many large and unexpected ones (like repairs), and you don’t want to reach the end of the pay period and realize your bank account doesn’t have enough in it to pay all of your employees. By keeping an account where you only deposit money that will be used to pay your employees, you have a better shot at keeping your books in order.
Fair scheduling, also known as predictive scheduling, secure scheduling, predictable scheduling, or restrictive scheduling, is a type of labor legislation that sets mandatory requirements for restaurant managers related to scheduling and overtime practices. Here are some examples of what fair scheduling or predictive scheduling laws may outline:
California, New York, and Washington currently have fair scheduling laws; more states are entertaining predictive scheduling legislation. If you’re in an area considering predictive scheduling legislation, it’s especially important to take time to research and familiarize yourself with the ways these changes may impact the way you approach restaurant scheduling, payroll, and overtime.
Employers are responsible for the following payroll taxes*:
Social Security Tax
Social Security and Medicare are what we know as FICA taxes.
*There may be additional state income taxes an employer is responsible for covering or contributing to. For example, in Massachusetts, employers are responsible for a MA Workforce Training Tax along with the above three taxes. Check with your local tax bureau for a full list of the taxes you, an employer, are responsible for.
Additionally, employers can anticipate encountering the following payroll taxes and payroll tax forms.**
**This is not a complete list. Please check with The Internal Revenue Service for the full, accurate list of payroll taxes and tax forms required for businesses in your area.
Form 941 - Form 941, filed quarterly by businesses, is used to report income, Social Security, and Medicare taxes withheld from employees' paychecks. This form simultaneously pays the portion of Social Security and Medicare taxes an employer is responsible for.
Form 943 – Form 943 must be filed by businesses that have paid wages to farm workers or agricultural workers whose paychecks were subject to social security, Medicare, or federal income tax withholding. This form may apply to farm-to-table restaurant concepts, restaurants that own their own farm, or restaurants that pay farmworkers directly.
Form 944 – Form 944 applies to businesses "whose annual liability for social security, Medicare, and withheld federal income taxes is $1,000 or less." Businesses are only required to file Form 944 once a year – rather than quarterly as with Form 941 – due to their smaller size. Examples of restaurant types Form 944 may apply to include pop-up food concepts, food stalls, or food trucks.
Form 945 – Form 945 is used to "report withheld federal income tax from non-payroll payments," including 401k, 403b, governmental 457b plans, and Military retirement. If your restaurant offers employees 401k, 403b, or employs members of the military, Form 945 may apply to you.
Form 8994 – Form 8994 is used to figure the credit for paid family and medical leave for eligible employers; this Form only applies for tax years beginning after 2017. If you are an eligible employers and an employee in your restaurant has either taken a hiatus on medical leave or as a new parent, you may need to file this form.
Form 940 - Form 940 is an unemployment tax report form, submitted annually. It discloses to the IRS the amount of your business’ unemployment tax liability as well as the amount you have paid on this liability.
"You must deposit federal income tax withheld, and both the employer's and employee's social security and Medicare taxes. There are two deposit schedules, monthly and semi-weekly. Before the beginning of each calendar year, you must determine which of the two deposit schedules you are required to use. To determine your payment schedule, review Publication 15 for Forms 941, 944 and 945, or Publication 51 for Form 943. If you fail to make a timely deposit, you may be subject to a failure-to-deposit penalty of up to 15 percent. Deposits for FUTA Tax (Form 940) are required for the quarter within which the tax due exceeds $500. The tax must be deposited by the end of the month following the end of the quarter. You must use electronic funds transfer (EFTPS) to make all federal tax deposits. See the Employment Tax Due Dates page for information on when deposits are due."
To calculate payroll taxes in your area, you need the following information:
The employee’s gross annual pay
Your state’s State Unemployment Insurance (SUI) rate
Employers calculate withholding for federal income taxes based on the information provided by their employees on their completed W4 forms.
Here are the sources of information you need to calculate withholding for an employee:
Now that you have all the information you need to calculate withholding for your employees, you will use Publication 15-A to perform the calculations. The IRS created this guide to help employers navigate calculating withholding, as well as this calculator to help you calculate withholding.
Yes, the tips or gratuity a tipped-wage worker receives are taxable, because the IRS considers them a part of their income. Tipped wage employees are responsible for tracking and declaring their tips. For a full list of the rules, regulations, and processes around paying taxes on tips, check out the IRS’ instructions here.
Besides the financial investment in labor, restaurant owners, operators, and managers spend a lot of time calculating and distributing payroll to their employees.
Restaurant payroll can take anywhere between two and eight hours to complete, because traditionally, the crucial data needed to run payroll is collected and stored in a myriad of places: Timecards and tip accrual in one place, schedules, PTO, benefits, and overtime in another, and tax information in yet another. Because these different data wells don’t speak to one another, it’s on whoever does payroll to manually combine labor data and calculate payroll.
There are a variety of options when it comes to payroll software for small businesses. Restaurant owners, operators, and managers who conduct payroll typically use payroll software, an online payroll service, or a restaurant payroll spreadsheet. The outputs of those systems are then manually uploaded into the restaurant’s chosen payroll software or online payroll service.
Popular payroll software or online payroll service vendors include:
These payroll software and online payroll service vendors are not restaurant specific and may or may not integrate with your restaurant's point of sale system.
If you’ve decided to invest in a payroll software, consider Toast Payroll & Team Management, the first all-in-one restaurant point of sale and payroll solution built specifically for restaurants. Toast Payroll & Team Management saves you time and streamlines your restaurant operations through: