Your tables are set, the kitchen is prepped, and your staff is getting ready to open for the day. You have a few minutes, so you decide to go back to the office before opening. You look over your financials, pay some bills, and look through your mail. Your mail has the usual, some vendor bills, junk mail, but then you see something that you never wanted to see, a letter from the IRS. You reluctantly open the letter and as you begin to read your stomach turns. You owe the IRS thousands of dollars in taxes, late fees, and penalties, all because you didn’t file your payroll taxes properly.
All businesses with employees need to run payroll, but not all payroll processes are the same. Restaurants have their own set of unique problems when it comes to payroll. Ensuring that your payroll is running correctly is key if you want to avoid problems with the IRS. The most common problems for restaurant payroll include:
1. Incorrectly Reporting Cash and Credit Card Tips -
One major difference between regular payroll and restaurant payroll is handling cash and credit card tips. Tips paid to your employees not only need to be reported to the IRS but also as income of the employee. The manner that tips were paid is also reported differently in your accounting system. Not monitoring cash tips can lead to dangers such as theft from employees or opening yourself up to IRS audits and penalties.
2. Not Monitoring Labor Costs -
Labor costs are one of the largest cost factors in any restaurant and it averages about 35% of every dollar earned. Payroll should effectively categorize labor between the major areas of your restaurant. This should include the back of the house, front of the house, and management. If all payroll costs are collected into a single account, it can lead to overstaffing issues which has you paying more in wages than is necessary.
3. Payroll Tax Errors -
Paying and reporting payroll taxes at all levels of government can be difficult and time consuming. Payments need to be made and forms need to be completed on specific schedules. Any mistakes or late filings can lead to large penalties from government agencies.
