If all this sounds a little overwhelming, don’t panic because you don’t necessarily have to run restaurant payroll on your own. So far, Oregon is the only state with statewide fair scheduling laws in place, but several cities across the country like payroll for restaurants San Francisco, New York City, and Seattle have had these laws in place for years. As a restauranteur, you should know whether these laws apply in your city and make managerial provisions to ensure that you’re compliant with them in case they do.
Finally, it’s advisable to acquire a Form W-9 from every contractor hired by the restaurant in order to get their relevant tax and identification information as required by the IRS. You should also verify that each employee’s social security number is valid to prevent errors while reporting employee information to entities like the IRS. The law also requires both the employer and employees to properly complete a Form I-9 to verify the identity and employment authorization of any individual hired for employment in the restaurant. You will also need ID numbers for the state, territory, or district in which your restaurant is running. Check each state’s department of labor and department of revenue for further details on business registration.
Rules and Regulations for Tipped Employees
However, much like minimum wage requirements, this definition varies from state to state. Occupations like valets and porters fall under this definition, but research shows that about 60% of tipped employees in the U.S. are servers and bartenders. Unless employees earn less than $20 in tips in a month, the Internal Revenue Code requires them to report all tips to their employer, as all tips are income and therefore subject to Federal income taxes. The program is funded by a small payroll deduction (0.153% of an employee’s wages each pay period). So while you must hold the spot for an employee for the duration of the leave, you won’t have to pay that employee’s wages for the hours not actually worked in your restaurant. What your tax burden looks like in New York depends on where in the state you live.
New York City’s income tax system is also progressive and rates range from 3.078% to 3.876%. There are federal provisions for tipped employees who work overtime, requiring overtime pay for hours worked over 40 per workweek, at a rate not less than one and a half times the regular rate of pay. Running a restaurant involves many expenses which may quickly deplete your business bank account funds. Therefore, it’s important to have a separate account with adequate funds at all times for paying employees at the end of the payroll period. With labor laws on age, wage, overtime, and time off–many of which vary between New York State and New York City–it’s easy to overlook a law or two. However, these oversights are rarely excused and can cost your restaurant big time.
Make the Switch: Your first 3 months of 7shifts Payroll are on us
The form also utilizes a five-step process that asks you to enter personal information, claim dependents and indicate any extra income or jobs. One of the reasons that running payroll for restaurants can become complicated is because of the complex rules around paying tipped employees. You must report the total tips submitted by your employees for the payroll period, as well as their work hours and hourly rates to the IRS. This information will also appear on your Employers Quarterly Payroll Tax Return form.
Under the FLSA, there are special provisions for the payment and taxation of tipped employees. The maximum tip credit allowed under federal law is $5.12 per hour. This means employers may pay employees as little as $2.13 per hour as long as the tips made per hour can bring the employee’s total hourly earnings to at least $7.25, which is the federal minimum wage. With that said, it’s important to note that minimum wage requirements for tipped employees vary across states. In some states like California and Oregon, the employer cannot claim a tip credit.
New York Minimum Wage
It does mean it’s a good idea to be aware of the ongoing expenses and build them into your budget. If you are considering using a mortgage to purchase or refinance a property in New York, our New York mortgage guide can provide useful information about rates and getting a mortgage in the state. Some states have state payday requirements stipulating when employees should be paid, but several allow you to decide for yourself. Employees can be paid on a monthly basis, a weekly basis, or using a two-week pay cycle – the most common pay period in the hospitality industry. For example, an employee can earn one hourly rate while working as a server, and a different rate while working as a hostess. This is a separate checking account exclusively used to pay employees.
Another option is to put money in a spending account like a health savings account (HSA) or a flexible spending account (FSA) if your employer offers them. The money you put in these accounts is also taken from your paycheck before taxes, and you can use those pre-tax dollars to pay for medical-related expenses like copays or certain prescriptions. Just keep in mind that only $500 in an FSA will roll over from year to year. If you contribute more than that and then don’t use it, you’re out of luck. The biggest change is that you won’t be able to claim allowances anymore. Instead, you’ll need to input annual dollar amounts for additional income and things like non-wage income, total annual taxable wages, income tax credits and itemized and other deductions.
This also means that these tips do not need to be claimed elsewhere by the employee on their personal income tax return. As a business owner, you’ll need to know which restaurant taxes you’ll pay, when you’ll pay them, and how to file them. You’ll also need to know enough about payroll taxes to make sure you’re deducting enough from your staff members’ paychecks – and maybe give your serving staff a little advice on how to report on their tips during tax season. New York State’s progressive income tax system is structured similarly to the federal income tax system.
Keep in mind that if an hourly employee receives only an occasional tip and doesn’t meet the $30 requirement, then you don’t need to report their gratuities. But they do file what’s called an “information return” that reports the business partnership’s income, deductions, gains, losses, etc. Then, similar to sole proprietor businesses, income tax reporting must be “passed through” each partner, who includes their share of the business’ income or loss on their tax return.
Payroll Taxes for Restaurants
First things first, you’ll need an Employee Identification Number (EIN). An EIN will serve as your business’s tax identification number during the process of filing taxes for your business. It’s also your unique identifier for any paperwork involving the IRS, Social Security Administration (SSA), and Department of Labor (DOL). Restaurants in New York must provide at least twenty four consecutive hours off of work each week, so keep this in mind when building your schedule, and make sure your staff knows this when offering to trade shifts.
Keep in mind that this only applies to the base wage and not tips earned by tipped employees, which are taken home at the end of a shift, often in cash. Once a payroll schedule has been chosen, set up direct deposits into your employees’ bank accounts. This is preferable to writing checks because you can’t predict when an employee will cash their check, and this could cause cash-flow complications for the restaurant. Now that you’re familiar with the basics of payroll for restaurants, it’s important to familiarize yourself with some important requirements that must be met before you can actually start processing payroll. In New York City, however, employers must provide employees with up to 40 hours of sick time per year, accrued at a rate of one hour per every 30 hours worked.
Federal law requires employers to pay tipped employees a tipped minimum wage of $2.13 per hour. This differs from the federal minimum wage for untipped employees, which is $7.25 per hour. This is because federal law allows employers to take a tip credit from their tipped employees. A tip credit is the maximum portion of the minimum wage that an employer isn’t required to pay a tipped employee.
- If it’s within your budget, offering paid time off to incentivize sick employees to stay home without fear of losing wages is probably the best bet, even if not legally required.
- Then, depending on the zipcode, the sales tax rate of Chicago varies from 6.3% to 10.25%.
- You must report the total tips submitted by your employees for the payroll period, as well as their work hours and hourly rates to the IRS.
- New York State’s progressive income tax system is structured similarly to the federal income tax system.
- Running a restaurant involves many expenses which may quickly deplete your business bank account funds.