Payroll might happen behind the scenes, but when it goes wrong, the impact is felt everywhere.
Think compliance fines, frustrated employees, missed tax credits, and unnecessary penalties that chip away at your bottom line. For restaurants, where teams are large, schedules shift constantly, and regulations vary from state to state, even a small payroll error can snowball fast.
To help you navigate it all, we sat down with R365’s payroll experts to answer the most common (and costly) questions we hear from restaurant operators. From how to classify workers and avoid audits to managing wages across multiple jurisdictions, this Q&A dives into the real-world scenarios you’re likely dealing with and how to stay compliant without adding hours to your week.
Whether you’re a growing concept or a multi-unit group, these insights are designed to help you simplify payroll, protect your business, and stay focused on what you do best: running a great restaurant.
We asked our in-house payroll pros to tackle the top issues restaurant operators face when it comes to paying their teams accurately and staying compliant.
Their answers below cut through the confusion and deliver actionable advice you can use right now. Let’s get started!
A: This is a common scenario in the restaurant industry. But classification is determined by law, not preference. If the worker meets the behavioral and financial control standards of an employee, they must be classified as a W-2—even if the employer “agrees” otherwise. Letting staff self-select can open you up to audits, back taxes, and penalties.
A: You can start by comparing hours worked to pay issued, flagging anomalies (e.g., over 40 hours without overtime, negative PTO balances, or zero-hour paychecks). Also check your labor distribution by role/location—sudden shifts could signal scheduling or coding issues. An audit—which we’d recommend at least quarterly—should also include classification, tax withholdings, and benefits eligibility.
A: This one trips up a lot of restaurant owners. Under ACA rules, you need to track hours during a defined “measurement period” to determine if a variable-hour employee averages 30+ hours/week and should be offered health insurance. This is where the lookback method comes in—it allows you to measure hours over 3 to 12 months, then offer coverage in a subsequent “stability period” if they qualify. If you’re not tracking hours consistently, it’s easy to miss eligible employees and risk penalties. We recommend using a system that automates eligibility tracking and not relying solely on job titles or full-time vs. part-time assumptions.
A: One strategy is using compliance systems integrated into a modern payroll platform designed for the industry. Outside of your tech stack, you can also subscribe to state restaurant associations for policy alerts. If you have more than 5+ states, consider contracting with a compliance consultant once a year to review your practices.
A: Build it into your onboarding workflow with required fields. A modern payroll system integrates WOTC screening into the application.
A: The cleanest transitions happen at quarter-end or year-end, but it’s doable anytime with proper setup. Just make sure the new system can import year-to-date data correctly, including wages, taxes, and accruals. Get 1-2 dry runs in before cutting over.
A: This is a common challenge for restaurants that are across city or state lines, such as a group with a location in LA and another in Orange County. You need to pay the applicable wage for each location worked. That means tracking hours by location and applying the correct rate. A payroll solution designed for restaurants supports location-based rate rules to automate this.
Payroll might not be glamorous, but it’s one of the most critical parts of your restaurant’s operations and one of the easiest places to lose money if you’re not careful. The good news? With the right knowledge, tools, and support, you can stay ahead of compliance, reduce manual work, and protect your margins.
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