Restaurant Tax Guide: Payroll, Income, Property & Sales Tax

Jul 19, 2023 3

what percentage of payroll for restaurants

The only way to recognize if these changes are working is to have an accurate measure of your labor cost. Thus, when calculating your restaurant payroll percentage, be careful to account for your true total labor expenses, including tips, taxes, and benefits. If you leave these out, you’ll have an overly rosy impression of your labor cost and will miss potential areas for optimization. All payroll taxes and payroll deductions have to be done through a payroll system with some type of payroll software.

what percentage of payroll for restaurants

Again, processing employee’s banking information is confidential, therefore you need to put in place security measures to protect this information, or you can get into serious complications. A payroll schedule looks at the payroll tax rates, the number of hours an employee works per week, and payroll taxes. The payroll taxes are then multiplied by the number of hours that employee has worked in a week. In the US, payroll taxes for Social Security and Medicare are calculated at a combined rate of 15.30%. The employer pays half, or the total amount of payroll tax is the same as for FICA.

FICA and Payroll Taxes

Especially since many positions in the restaurant industry are paid on an hourly basis, a streamlined scheduling process can make an enormous difference in your operating costs. Tools like scheduling software can help you monitor overtime and track whether you are meeting your payroll percentage goals. Scheduling software can also help save time for your in-house management team, freeing managers up to complete more valuable tasks. At the state level, most restaurants will need to file similar forms regarding withheld payroll taxes, unemployment taxes, and workers compensation insurance. It’s very common for these forms to be submitted quarterly, but their names and specific due dates can vary so it’s important for restaurant owners to familiarize themselves with their state’s requirements.

  • Restaurant labor costs involve all of the expenses incurred with respect to paying employees, including wages or salaries, employment taxes and employee benefits.
  • Investing in a payroll provider with robust tools like Paylocity can not only alleviate stress from running payroll, but also save ownership the time and energy needed to focus on other priorities.
  • Anonymous employee surveys or exit interviews can also help you start to pinpoint what can be adjusted to decrease turnover.
  • The most common federal payroll taxes are for Social Security, Medicare, Unemployment tax, and Income tax, which employers can pay on the Electronic Federal Tax Payment System (EFTPS).

Afterwards, you will need to add each of your employees to the payroll system you have and within more than a week, you will be able to offer direct deposit for their pay checks. Setting up direct deposit either involves a payroll service, like mentioned earlier, or directly involves your bank, which you will need to contact for more information. Some payroll services can also use information from your bank to transfer funds directly for you. Benefits programs can be a great way for restaurant owners to show appreciation for their employees. It’s important for restaurant owners to show their employees that they care about them as people. Working in the restaurant industry is also hard work and people need to be compensated for their efforts.

Worry-Free Payroll

You’ll also need to withhold a portion of your employees’ wages to ensure they are paying the appropriate amount of tax. Most locations are governed by withholding formulas based on how much money each employee makes. Here’s where you can find all the information you need to withhold payroll taxes in certain locations. For tips earned on credit cards, employers must pay the employee the tip no later than the next regular pay day. To comply with restaurant payroll guidelines, employers cannot hold the tip until they receive the money from the credit card company. Other important aspects to factor in are the benefits, taxes, sick days, insurance, vacation pay, etc.

Optimizing Restaurant Payroll Percentage

A menu matrix helps you visualize which dishes are most important for your restaurant’s revenue. The objective of menu engineering is to assure that every item featured on your menu is popular and profitable. This assures that, no matter what guests order, it’s good for your bottom line. Menu engineering combines psychology, data and design to increase guest profitability. Some sources say that menu engineering can increase profits by as much as 20%.

Who qualifies as a tipped employee?

Proper training improves efficiency, which means you can have a leaner workforce without sacrificing customer service. So, train new hires properly by showing them how to use your POS, clearly articulate your customer service standards, and let them shadow other employees. Also, ensure all employees have access to your employee handbook to prevent any human payroll for restaurants error from costing you money. Employees that earn less than $20 in tips are not required to report their tips to their employer for that month. However, when the total tips are greater than $20, employees must report tips monthly. This is done by filing IRS Form 4070, Employee’s Report of Tips to Employer, or a similar statement with their employer.

  • The information to complete this process includes employee’s bank account number, routing number, type of account, bank name and address that are going to receive the payment.
  • Reporting services and trade journals track statistics for certain industries, such as restaurants and health care.
  • Employees should be scheduled based on their availability, with each shift assigned at least one employee so it doesn’t leave shifts unfilled.
  • Note that some compliance regulations vary from state to state, including things like credit card processing fee deductions from tips.
  • Employees will simply need to provide their Automated Clearing House (ACH) information, which includes the routing number for their financial institution and their account number within that institution.

Many servers have personal rules for reporting their tips during tax season. Some use the “10% rule” in that they only claim 10% of their gratuities as income on their personal tax return. Some don’t view their tips as taxable income at all – and in some ways, you may not blame them. If you’ve worked in the restaurant industry, you know it can be difficult to earn a living wage and understand the inner conflict that arises every year during tax season.

A guideline for payroll costs

The payroll tax rate will depend on how much an employee earns during their payroll period. Some restaurant owners have the tendency to skimp on payroll taxes and pay their employees a lesser cash wage. They want to avoid payroll tax payments by paying as less as possible, but this is the most costly thing they can do because these are mandatory contributions that must be paid on behalf of an employee. These are just some of the questions that come into mind when thinking about payroll management. Fortunately, there are payroll systems that make it easier to handle these challenges so that you can focus on running your business more efficiently.

Most people turn to social media to post their meals and dining experiences in addition to leveraging it to find new restaurant locations. When done right, creating your own hashtag and promoting it is a great way to increase awareness and gain positive exposure for your restaurant business. Rewarding regular guests is a great way to build your loyal customer base and increase positive word of mouth. But in order to do this, you’ll need to get new customers in the door first—and turn them into fans. Restaurant guests are typically referred to as covers—and increasing the amount spent per cover increases your overall sales. Servers can boost your restaurant’s cover average by upselling to customers.