How To Manage Restaurant Payroll With Tipped Employees

Working in the Human Resources department of a restaurant gives you many different duties. One of the most important jobs that you have is to complete the restaurant payroll. Because of the different tipping policies implicated in the United States, this is not always a simple task. Here are some tips to manage your restaurant payroll with tipped employees.

Identify “Tipped Employees”

The IRS has put several laws in place regarding highly tipped employees. These laws require every employer to know when any employee is making over $20 in tips per month. This knowledge is used solely for tax purposes, but it is important to implement employee monitoring. If an employee makes over this amount per month, the restaurant is technically losing money. These “tipped employees” continue to bring home the same wage given to other employees, who don’t receive the same amount of tips. Because of these laws put in place by the IRS, “tipped employees” are getting paid less by their employers. These laws are designed so that businesses can legally pay these highly tipped employees less.

Follow FLSA Tip Guidelines

The Fair Labor Standards Act (FLSA) has provided some guidelines for restaurants regarding payroll. The federal minimum wage is $7.25. Each employee is paid this, plus the tips that they receive. For employees receiving over $20 per month in tips, the restaurant is able to implicate a tip credit on their payroll. Based on the amount of tips that the employee receives per month, the tip credit will vary. The maximum amount allowed by law in tip credit is $5.12. This gives the employee a minimum wage of $2.13 per hour, plus the tips that they will make. If the tip credit is too high, and the employee hasn’t made it all up in tips by the end of the month, the employer must compensate the difference.

Calculate Credit Card Tips

Credit cards are becoming the most popular payment method in a restaurant. If a customer is paying with a card, it is more likely than not that they will be adding a tip on their card as well. This becomes a little complicated for restaurants. Most of the time, the credit card company will charge the restaurant with a transaction fee. Because of this, the transaction fee is taken out of the tip amount. This may affect the tip credit you set up for your employees. But, as long as you correctly compensate the employee at the end of the month, it won’t hurt their pay. This cash flow management will ensure that they are still getting paid the federal minimum wage.

Settle Your Tip Pools

Tip pools are another way that restaurants settle employee tips. This is a method of splitting the tips equally between each employee, making sure that each brings home the same amount every night. For payroll purposes, federal guidelines have been created for tip pools as well. According to the FLSA, this method can be used as long as the amount of tips given to each employee is greater than the tip credit implicated. In this case, the tip credit is still calculated based on the individual. For these restaurants, completing the payroll is more simple. If every employee is getting paid the same and making the same in tips, they will also all have the same tip credit.

Adhere To State Regulations

One further thing to keep in mind regarding restaurant payroll is the state regulations. Beyond the federal laws, each state has their own laws regarding payroll. Thankfully, there are not 50 different variations of laws throughout the US. Instead, there are three general laws that are followed by various states. One of these laws requires the employer to pay “tipped employees” above minimum wage. Other states require that the employer must pay the full state minimum wage, no matter how much the employee makes in tips. The last set of states have the same requirements as the FLSA for employee payroll. These further regulations are important to keep in mind when completing restaurant payroll.

Completing the restaurant payroll is not exactly an easy task. If you have the time and patience, you can work on it manually. But, you are more subject to cash flow mistakes and other human errors. If there are too many factors to worry about, you can hire an accountant or use a payroll software. Either way, there are many factors regarding tips to look out for. With these in mind, you will have an easier time completing the restaurant payroll.

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