Business owners would agree that payroll can be complicated regardless of industry. But some industries have it harder than others. For example, take restaurants. Restaurant owners have to be cognizant of an extensive list of special considerations that do not apply to other industries. Therefore, restaurant owners unfamiliar with payroll processing can easily run into trouble with state and federal taxing authorities.
One option for restaurant owners is to work with a company like BenefitMall, a national provider of payroll and benefits management solutions and a company offering a specialized restaurant payroll solution. In the absence of outsourcing, restaurant owners need to be sure they fully understand and comply with the law.
The Wages and Tips Conundrum
The most important, and arguably most confusing, special consideration is that of differentiating between wages and tips. Consider the average restaurant server who might earn a base wage plus all or a percentage of the tips earned. Tips have to be reported as income, but the government looks at tips in a number of ways.
For example, any tips during a single pay period that equal at least 8% of an employee’s total income must be reported by employers. It matters not whether that income was realized through cash, credit or debit cards, or another form of electronic payment. Of course, employees are required to report all tip income.
The government looks at automatic gratuities differently. An automatic gratuity is one added to the bills of large parties to cover the extra effort required to serve them. It could be something like 18%, 20%, greater. The government looks at these gratuities as income for the restaurant. That’s why sales tax is charged on them.
Whatever portion of an automatic gratuity is shared with an individual worker must be reported by that worker as tip income. This requires employers to clearly delineate which employees are getting a share of the tip, and how much.
Government regulations relating to FICA contributions apply to all workers regardless of how they get paid. But with restaurants, there are special considerations. One of those considerations is the FICA tip credit that allows employers to apply worker tips to the federal minimum wage for the purposes of paying FICA taxes. As long as an employee is earning at least $30 per month in tips, the credit can be used.
Assuming restaurants provide free meals to their employees while on duty, they can use the value of those meals as a deduction against income. Why? Because the government considers free meals a benefit. As long as the meals meet two requirements, the value of those meals is considered nontaxable:
- meals must be prepared and consumed on site; and
- they are provided for the benefit of the employer rather than the employee.
The second stipulation is a bit tricky. Here is one way to explain it: an employer may not want servers to go off-site for meals during a particularly busy period, say on the weekends during the dinner hour. Providing a free meal on-site keeps servers at the restaurant in case they are needed. This benefits the employer.
A Lot to Consider
This article has just scratched the surface in terms of what restaurant owners need to deal with in the arena of payroll processing. It could be that the only industry with payroll processing as complex is the construction industry. In either case, there is a lot to consider due to the unusual nature by which some restaurant employees are paid. That’s good reason to consider outsourcing to a company like BenefitMall.