The Complete Guide to Setting Up Restaurant Payroll

If you’re new to launching a restaurant, necessary business operations can seem completely foreign and, as a result, insurmountably hard to understand—let alone trying to actually do it. As far as the federal, state and local governments, as well as your employees, are concerned, though, managing your payroll system is one of the most important jobs you have.

What do you need to get payroll started at your new restaurant?

1. EIN

Getting an EIN, or Employer Identification Number, is the first step towards identifying yourself as a legitimate business in the eyes of the federal government. This number, also known as your Employer Tax ID, establishes you as a business entity which allows you to open a company bank account, apply for licenses and file your tax returns. You can get an EIN online through the IRS.

Along the same lines, it’s important to note that some state and local governments require a business ID for their tax purposes too. You should contact your officials to see if you need one and learn how to apply.

2. Staff Information

To properly file your necessary payroll paperwork, you’ll need personal information from your staff. It’s required for the forms and reports that you need to file taxes on their behalf. Get your teams’ names, dates of birth, addresses, employment start or end dates, tax filing numbers and compensation methods in writing. Then fill out and submit for verification Forms I-9, for employment eligibility, as well as W-4s or W-9s (for employees and independent contractors, respectively). Gathering these forms and information is critical to remaining compliant with state and federal laws surrounding small business payroll systems.

3. Employee Classification

Speaking of employees versus independent contractors, you’ll need to classify your employees to determine the legalities surrounding their wages, including what you owe and withhold in taxes. Are they full or part time? Are they a tipped worker?

Tipped employees have their own associated laws which determine how they’re paid and what you owe the IRS. The U.S. Department of Labor defines tipped workers as anyone who makes more than $30 per month in tips, and they allow employers to pay tipped hourly workers less than the federal minimum wage ($7.25/hr) with a tip credit, meaning you only pay them $2.13/hr. The requirements for tip credits vary by state. Tips as taxable wages also depend on how much employees earn per month. It’s best to set up a tip-tracking system, like a daily report, to keep your books organized and make for easier filing come tax time.

Distinctions between employee classifications can be difficult, but they matter a lot. Incorrect filing can lead to large back pay sums, interests and penalties. Determining exempt versus nonexempt employees also informs their eligibility for things like benefits and overtime. The IRS provides Form SS-8 to help you with all of this so your accounting is a little bit less stressful.

4. Pay Period

Payday, the most important day of an employee’s fortnight—or month. It’s not set in stone when you have to dole out payroll, so it’s up to you to decide. However there are a few things to consider before setting the date:

  • State and federal restrictions.
  • Your own schedule. Payroll is a massive expense for a small business, so you should work out when works best and be the least detrimental to cash flow.
  • Employees’ needs. In the restaurant industry especially, pay is low and benefits are far and few between, so your staff probably has cash flow requirements of their own. When deciding the frequency of payroll, keep their needs in mind too.

Communication is key. Once you figure out when and how often to do your payroll, inform your staff so that everyone remains on the same page.

5. Payroll System

Now that you have the details sorted out, you can decide how you want to actually process your payroll. The choice really comes down to whether you want to do it manually or use a management software that takes care of everything for you.

Doing payroll by hand is definitely cheaper, but it also leaves plenty of room for human error and takes up a lot of time; managers waste multiple hours every month this way. If you invest in a software that handles payroll instead, you ultimately make back the upfront costs that you spend on a subscription. Companies like Gusto seamlessly integrate with your Point of Sale system when you sign up with eatOS. They automatically run payroll for you while giving you access to real time information, organizing your data, helping with taxes and making accounting management easy.

Whether you use Gusto or some other software, look at the reviews online and research what will work for your business. Your needs and budget determines what payroll management software fits best.

Though your payroll system is all set up and ready to use, your job still isn’t over. You need to maintain best practices all the time so you never run into issues with the IRS. Some tips to remember:

  • Pay on time, always. Late wages correlate to dips in staff morale.
  • Take your time and ensure payroll is completely correct. Over- or underpaying employees causes issues during tax season and will be a headache to unravel.
  • File taxes by the IRS deadline or risk a 10% Failure to Deposit penalty. Remember to file your city and state taxes, too.
  • File your Employer’s Quarterly Federal Tax Return form and report any withholdings. In line with pristine record-keeping, make copies of all of the forms mentioned in this article and store them securely for easy access.

Your payroll system is an integral part of regular business operations, and taking these steps to set it up properly will streamline the process down the line and ensure your restaurant is always square with finances, compliant with the law and ready to face the day.

Editor's Picks