How you run and track your payroll accounting has a significant impact on restaurant operations. From hiring and onboarding to running employee payments and paying taxes, payroll touches on many different parts of a restaurant business.
In addition, many features of the restaurant industry, particularly for multi-location restaurant groups, set restaurant payroll apart from payroll at other kinds of businesses.
Whether you are a payroll professional new to the restaurant industry, or an experienced restaurant accounting veteran looking for opportunities to sophisticate your systems, there are many ways you can streamline payroll and use it to improve overall restaurant operations.
This two-part blog series presents an overall guide to the essentials of payroll accounting for restaurant groups. Part 1 provides an overview of how you can leverage restaurant-specific payroll accounting software to address challenges and create new opportunities for your restaurant group. Part 2 will cover some more of the nitty-gritty details of restaurant payroll, including regulatory considerations and specific functionality to look for in your restaurant payroll software.
Simplifying tracking labor and payroll data
Your restaurant’s two largest expenses are your food and your labor costs (together, known as your prime cost). Tracking both your food and labor costs in detail is critical to maintaining healthy profits over time.
While there are many details surrounding your food cost data, the actual tracking is relatively simple. Your restaurant orders, receives, and counts food all in one system: your inventory management software. Your inventory management solution measures and stores all the information you need about your food cost.
However, tracking your labor cost is a bit more complicated. Think of your labor cost as the cost of time, just as food cost is the cost of ingredients. Tracking time occurs in many different systems. You order time in your scheduling system. You receive time in your Point of Sale (POS) system. And you count time in your payroll software.
Thus, your labor costs are spread out between your scheduling, POS, and payroll software. Separating this data out between three different solutions can be challenging, because between integrations and manual data-transfer processes, you are multiplying the potential for errors and inefficiencies.
Combining labor cost data tracking into an integrated solution, whether for just two or even three of the systems, can have an enormous impact on streamlining your operations.
Tracking labor and payroll data for restaurant employees
Before diving into payroll data, it’s important to examine the different ways you can break up labor costs.
Most restaurant industry roles can be separated out into two categories: salaried employees (most likely your managers) and hourly employees. The payroll for your hourly employees represents one of the most controllable expenses on your profit & loss (P&L) statement.
Your direct labor costs, otherwise known as unburdened labor, represent the wages that you pay to hourly employees. However, the cost of hourly wages doesn’t include the full picture of your labor.
Your fully burdened labor cost represents the labor costs of both your hourly and salaried employees, as well as related expenses such as payroll taxes, employee insurance, and employee benefits.
While breaking out direct labor costs can be helpful to identify how you are allocating flexible labor hours, using your fully burdened labor costs in labor analysis reports can provide a complete picture of expenses.
Payroll processing solutions for unique challenges of the restaurant industry
When it comes to payroll, the restaurant industry offers some unique challenges. However, payroll software that is specifically designed for the restaurant industry can help meet those payroll challenges and provide new opportunities that benefit operations. Here are a few ways your payroll processing can impact different areas of your business.
Addressing Separate EINs for Separate Locations
Many restaurant groups that have multi locations may be running each location under a separate EIN. Companies may file for different EINs because of the need to get separate liquor licenses, deal with different investors, expand outside state lines, or grow through acquisitions.
However, numerous EINs under the same company can cause complications across the business, starting with running payroll.
Your company may want to share employees across locations because it can offer labor efficiencies. However, tracking payroll for the same employee across multiple EINs can quickly become complicated. Which EIN covers which payroll cost for that employee? How do you complete an intercompany transaction? And at what point do you begin to merge locations into one EIN?
Your payroll processing solution can help enable efficient data tracking, down to granular detail about location. With the ability to accurately track payroll data, even across multiple EINs, you can remove payroll as a barrier to more efficient labor operations.
Offering Same Day Pay
Most restaurant owners and operators are feeling the pinch of a competitive hiring field. Some other industries, like driving passengers or delivery, offer people the opportunity to work and get paid on the same day, which can be a competitive advantage. To stand out as an employer, your restaurant may want to consider processing payroll more often than every two weeks.
Payroll solutions vary in how they structure payroll frequency, but some payroll solutions may offer the potential to run a more frequent payroll.
After all, restaurants have historically offered same-day take home pay in the form of cash tips for front-of-house workers. Offering this option as a potential benefit for all your staff can return to that same idea, extending it beyond just servers or bartenders who take home cash tips at the end of a shift.
Complying with Local, State, and Federal Payroll Regulations
Many labor laws and payroll regulations vary by state and locality, increasing the complexity of payroll for restaurant groups with multiple restaurant locations.
To stay compliant across all your locations, you must track your data accurately, document it consistently, and apply the correct regulations to different employees. Your payroll software should enable this complex reporting, allowing you to automatically process multiple minimum wages, withholding tables and local regulations to help you.
Following Regulations Around Tipping and Other Employee Compensation
One of the major challenges in restaurant industry payroll is properly tracking, reporting, and taxing tipped income.
First, your restaurant needs to accurately track tips, whether they are cash tips, credit tips, automatic gratuities, or pooled tips, as well as track your restaurant’s tip credits. Especially if you changed tip policies during the COVID-19 pandemic to offer more support for your employees, ensuring compliance across locations is critical.
Next, your restaurant must also report all taxable forms of compensation and accurately calculate payment of tax on tips. Paying the correct taxes starts with accurate recordkeeping, week in and week out.
Your payroll solution should track not only wages and salaries, but also all tips, benefits, and other employee compensation. With robust payroll software, you can track your compliance with reporting taxable forms of compensation, based on hours worked and tips earned. Some systems can even help automate processes like applying income if tipped worker wages don’t match minimum wages.
Integrating Payroll and Restaurant Accounting Solutions
At its core, payroll is an accounting function. However, frequently, payroll is done outside of restaurant accounting software. If your restaurant uses separate payroll and accounting systems, you are left importing data back and forth, a manual process that can lead to errors or wasted time. Especially if your restaurant group covers multiple EINs, your payroll and accounting team may spend a large amount of time updating multiple instances.
However, if your payroll and accounting solutions are fully integrated on the same system, including full POS integration, you can eliminate manual imports or manual data entry and increase accuracy. Automated labor accrual journal entries can streamline payroll processing and allow your team to spend time on more important strategic tasks, like staying up to date on compliance and regulations.
Accessing Other Payroll-Related Integrations
Finally, your payroll solution can also be used to streamline other areas of compliance in operations. For instance, an increasing number of states and municipalities are requiring E-Verify for all employees. If your onboarding process can connect with the E-Verify system, you can easily transfer I-9 information to the appropriate parties to demonstrate compliance.
Because your payroll accounting is such a large part of operations, examining how you can get the most out of your payroll solution is key to improving your overall business financial health. The restaurant industry offers many unique restaurant payroll challenges, but payroll solutions can help restaurants stay compliant and take advantage of added efficiencies.
Restaurant365 incorporates Payroll + HR software, scheduling software, accounting software, restaurant inventory management software, and restaurant operations software into an all-in-one, cloud-based platform that’s fully integrated with your Point-of-Sale system, as well as to your food and beverage vendors, and bank. Ask for a demo of Restaurant365.
Read more in Part 2. If you’d like to share the concepts in this blog post with your colleagues, suggest they watch the recorded webinar.