Managing Restaurant Employees: More Than Just Payroll

Whether you currently own a restaurant or are planning to open one, managing restaurant employees can be one of the most challenging aspects of the business. From high turnover and compliance concerns to complex payroll and reporting, workforce issues in the food service industry can be tough to navigate.  

At Complete Payroll Solutions, we have been providing payroll, HR and benefits services to restaurants for over 18 years. We understand the unique situations you may face when running a restaurant so here we’ll cover the most common issues and tips for how to address them, including:

  • Setting Up Your Business
  • Hiring Restaurant Employees
  • Employee Onboarding
  • Paying Workers
  • Benefits
  • Compliance with Laws and Regulations

After reading this article, you’ll understand the steps you need to take to operate your restaurant compliantly and effectively.

6 Workplace Considerations For Restaurant Owners

As a restaurant owner, there’s a lot to think about to make sure you’re protecting your business from some of the most common workforce challenges. Here are the 6 biggest issues you face and how you can strategically address them to set yourself up for success.

1. Setting Up Your Business

When you’re ready to start hiring your restaurant employees, you’ll first need to make sure your business is properly established as an entity. Most commonly, businesses will start with one or more individuals to create an LLC. Sole members or partnerships can have tax benefits in your state that you wouldn’t find with a sole proprietorship. This entity structure also provides a layer of protection and separation for you as the business owner.

After you decide on the type of business entity, next, you’ll need to take the following steps:

  • Visit your Department of State Corporation Site: Search for the name that you’d like to use for your business. If a company is currently using something similar, you may need to ask them for permission in writing and, if approved, would show their response to the state.
  • Set up an account with your state: Typically, you’d engage a lawyer or CPA to finalize the necessary paperwork. You’ll also need to establish an online account for unemployment withholding taxes, paid family medical leave, and sales taxes, among others.
  • Get an EIN: You’ll need an Employer Identification Number (EIN) to set up a business bank account and for other purposes. Fortunately, it’s free and easy to obtain one. The IRS website features a step-by-step that’s simple to follow.
  • Get a State or Local ID: Depending on where you operate, you may need to get an additional tax ID number. You’ll want to check the requirements of your local or state government. This will typically be a Department of Revenue or Department of Taxation.

2. Hiring Restaurant Employees

Today, in a tough labor market, it’s very difficult to attract employees. Some ways to help recruit workers in a competitive environment include:

  • Use Social Media: Set up a Facebook page while you’re building your space. Post pictures to show your progress. Once your kitchen is ready, cook a few items while waiting for your final occupancy permits and share photos of them. This will allow prospective employees to see your operation.
  • Advertise: Hang a banner on the front of your building to get the message out that you’re looking for help. While a grassroots recruitment campaign can be difficult, it can also be effective. Another good tactic is to use a free job board – there are over 1,500 of them – to post ads for your non-sponsored roles and keep updating them to keep the posts at the top of search results.
  • Get Competitive with Compensation and Bonuses: If you’re thinking about paying employees minimum wage, keep in mind that some restaurants are offering a higher wage for cooks and servers. In New Hampshire, most servers in 2019 made $3.27 an hour (the state minimum wage for servers); today, they make $5 or more per hour, not including tips. As the restaurant owner, you may also want to consider incentive pay and bonus programs, common among franchises. For example, some employers pay $50 for an applicant to show up for an interview or a bonus after a period of employment such as 90 days or 6 months. 

3. Onboarding For Restaurant Employees

While expanding your workforce can be an exciting time, there’s also a lot to manage to bring new employees into the company and ensure they quickly become productive members of the team. And one of the steps that often causes the most stress for employers and employees alike during this time is new hire paperwork.

Some of the most common forms you’ll need your employees to complete include:

  • Form W-4 to indicate their desired federal income tax withholding
  • State withholding form, if applicable
  • Form I-9 to show they’re authorized to work in the US

One way to make this step easier is to use an Human Resources Information System (HRIS) during onboarding for a contactless and paperless employee experience. These systems will guide new hires step by step through required paperwork as well as additional activities. For example, employees can choose to receive their pay via direct deposit or Visa pay card, if you’re offering those options.

The HRIS will also prompt them to complete other actions like reviewing policies, signing off on your employee handbook, watching introductory videos, completing training on topics like safety or harassment, and elect benefits if you’re providing health insurance or a retirement plan.

4. Paying Restaurant Workers

A number of activities are required to process payroll for your employees. These include:

  • Gather Employee Information: To set employees up for payroll, you’ll need their name, address, date of birth, and compensation as well as some completed forms we just discussed like the W-4, I-9 and direct deposit agreement if you plan to pay them by that method.
  • Pick a Pay Frequency: Before you start running payroll, you’ll need to decide how often you want to pay your employees. Most restaurant employees are paid weekly but, in most states, you have the option to pay every two weeks. You should check with your state’s Department of Labor for the specific requirements where you operate.  
  • Calculate Wages: To run payroll, you’ll need to first calculate an employee’s gross pay. For non-exempt employees, this is the number of hours worked – collected in your Point of Sale system – multiplied by their hourly rate or overtime factor. The FLSA requires that you pay workers a minimum wage of $7.25 an hour, or higher if state or local law mandates it. That means that an employee’s combined cash and tip rate must total at least that amount. If your employees earn enough in tips to make up the difference, you’re only required to pay a cash wage of $2.13/hour; the other $5.12 is considered a federal tip credit that counts toward your minimum wage obligations. From gross pay, you’ll need to account for deductions and exemptions from income such as federal, state, and local taxes; Social Security; and benefit contributions.
  • File Tax Withholdings: Based on your deposit schedule, you’ll need to deposit federal income tax withheld and both your and your employee’s Social Security and Medicare taxes. Every quarter, you’ll need to report to the IRS how much money you withheld from each employee’s pay on Form 941, which is known as the Employer’s Quarterly Federal Tax Return. (If you have employees who receive tips, when you file your business tax return for the year, you may be able to claim a FICA tip credit for employer Social Security and Medicare taxes paid on Form 8846.) Most employers will also have to file Form 940 for FUTA taxes and deposit those taxes. 

5. Benefits For Restaurant Employees

In today’s tight market, you may want to consider offering benefits to help attract and retain workers. If you have 50 or more full-time workers, you’re required to provide health coverage under the ACA or pay a tax penalty.

Even if you’re like many restaurants and are under that threshold, you may still want to offer coverage for full-time workers. Some restaurants like In-N-Out-Burger even offer part-time employees the option to enroll in health insurance.

Beyond health insurance, other benefits restaurant owners are currently offering include:

  • Meal allowances or free food during shifts
  • Friends and family discounts when not working
  • Same-day pay apps

So your benefits are an effective recruiting tool, be sure to promote them when hiring since this step is often overlooked. In fact, only 22% of businesses promote benefits in job ads.

6. Compliance with Laws and Regulations

Like other types of businesses, you’ll need to make sure your restaurant complies with workplace laws and regulations. There are several key rules you’ll need to be aware of, among them:

  • Fair Labor Standards Act (FLSA): This law covers establishments with annual gross sales of at least $500,000. If this applies to you, you’ll need to make sure you pay workers minimum wage and overtime. In addition, you’ll need to inform employees who regularly receive more than $30 a month in tips if you elect to use the tip credit.
  • OSHA: The Occupational Safety and Health Administration (OSHA) regulations require establishments to protect employees from becoming ill or injured in the workplace. To ensure the safety of workplaces, OSHA can make unprogrammed inspections during which officers will review your compliance with OSHA requirements and help you reduce on-the-job hazards. To reduce your risk as a restaurant owner, you may want to create a workplace safety program.
  • Title VII of the Civil Rights Act: If you have 15 or more employees, you’ll need to make sure you don’t discriminate against employees or job applicants on the basis of race, color, religion, gender, pregnancy or national origin. So that means treating everyone similarly when it comes to reviewing applications, considering employees for promotions, or offering employee-related benefits.
  • Food Service Codes: Each state has food service regulations to help ensure proper handling and storage of food to prevent foodborne illnesses. A listing of state codes and regulations, many of which are modeled after the FDA Food Code, can be found on the FDA site. In many states, training is required to ensure employees understand safe practices so you should familiarize yourself with the rules where you operate.

How to Best Run a Restaurant Workplace

As you can see, there’s a lot to worry about as a restaurant owner because of the unique characteristics of your workplace. By understanding the top challenges you face and strategic approaches to address them, you’ll increase your restaurant’s chance for success.

Since there’s so much to consider, you may decide you want to outsource payroll to a third-party provider. Complete Payroll Solutions can be a good fit for your restaurant if you want: 

  • Seamless integration with your other business systems
  • Paperless payroll options that make pay more instantaneous
  • Data security with 24/7 monitoring
  • A team of local payroll specialists
  • Solutions beyond payroll such as outsourced HR and employee benefits

We’re not necessarily the right choice for everyone. For help finding the best payroll provider for your restaurant business, read our next article on the top factors to consider when selecting a vendor.

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