Every business with employees has to manage payroll. But every business payroll is a bit different. Especially those for restaurants.
Payroll for the restaurant industry can be somewhat more complicated than other industries. Although there are some options in how you manage payroll for your restaurant employees, outsourcing to a payroll service can provide a number of advantages.
While it may seem more cost-effective to process your own payroll each week, there are a number of advantages to payroll outsourcing with restaurant payroll services.
In addition to tracking tips, service charges, tax credits and regular wages there is the need for compliance with strict federal and state guidelines.
Complying With State Payroll Laws
California requires restaurant employers to pay full minimum wage to every employee, including those who receive tips.
In California, restaurants are monitored by the Labor Enforcement Task Force (LETF), under the direction of the Department of Industrial Relations. These California labor agencies work together to ensure employers are compliant with labor, safety and health, licensing, and payroll tax laws.
Common issues that must be avoided by restaurant employers include:
- Classifying employees as independent contractors
- Failure to keep all required records
- Not paying workers the wages owed
- Counting tips toward the wages
- Not allowing rest or meal breaks
- Not giving pay stubs or not paying payroll tax
In addition, there are a number of typical employer obligations regarding health and safety, harassment, and other issues that restaurant owners and managers must comply with.
Probably one of the most problematic reporting requirements for both employers and staff is that of tip income.
Server Staff, Tips, and Reporting Requirements
The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) requires tipped employees working at “large food or beverage establishments” to report, at a minimum, 8 percent of the establishment’s gross receipts. Allocated tip calculation and declaring allocated tips are necessary, but often misunderstood requirements.
Employers are required to file IRS Form 8027, the Employer’s Annual Information Return of Tip Income and Allocated Tips, which highlights any deficiency with the tip reporting requirements. In addition, employers are required to disclose in Form 8027 the establishment’s gross receipts, charge receipts and the amount of tip income reported by all tipped employees.
When the total of all employees’ reported or declared tips does not reach 8 percent of gross sales, the difference, or “shortfall”, between reported tips and 8 percent must be allocated among tipped employees by the employer and reported to the IRS.
Restaurant employers are required to report specific aggregate gross sales and tip income data for each establishment on an annual basis. As a result, these reports tend to show under-reporting of tip income by employees, which can then trigger audits and possibly greater tax liability for employees and employers.
IRS Agreements for Voluntary Compliance
The IRS has established voluntary compliance agreements for the restaurant industry, as well as other industries where tipping is considered customary. These programs are intended encourage tax compliance among tipped employees through taxpayer education. This can be far more preferable than traditional enforcement actions such as tip examinations:
- Attributed Tip Income Program (ATIP)
- Employer-designed Tip Reporting Alternative Commitment (EMTRAC)
- Tip Reporting Alternative Commitment (TRAC)
- Tip Rate Determination Agreement (TRDA)
Service Charges Versus Tips
According to the IRS, service charges are treated differently from tips for federal tax purposes. Any portion of a service charge that is given to an employee is considered wages, and subject to federal income tax, social security tax, and Medicare tax withholding. The amount must be included on Form W-2 as wages.
In addition, service charges are not reported as tips on Form 8027. According the IRS Instructions for Form 8027:
To accurately report and pay your taxes, you must correctly identify amounts as either a tip or a service charge. Generally, an amount is a tip if: The payment is made free from compulsion, The customer has the unrestricted right to determine the amount (including zero), The payment isn't the subject of negotiation or dictated by employer policy, and The customer has the right to determine who receives the payment.
Expert Help Can Ease the Process
You can count on the Accuchex team’s extensive knowledge base and 25 years of experience. Regardless of the number of employees you have, Accuchex has the expertise to help you process your restaurant payroll and to maintain payroll compliance.
As a business owner or payroll manager you do have many options for your payroll functions. But if you really want to take full advantage of the benefits available to you, outsourcing to a provider like Accuchex can still be the best decision.
Reliability, full-service options, and reputation are the hallmarks of a quality payroll management service provider. If you are currently looking to invest in outsourcing you get your Free Download: Payroll Outsourcing Guide to help you make an informed decision or call Accuchex Payroll Management Services at 877-422-2824.