Restaurant payroll is ruled by complex laws for employee wages and tips. With high turnover, unique tax situations and generally, large amounts of checks to be processed, managing a restaurant’s payroll and legal compliance can be a challenge. There are many ways minimum wage regulations, the tip credit, reporting and processing can affect payroll. Below are a few tips and rules to help payroll be a little easier:
As of January 1, 2019, the Minnesota minimum wage rate will increase to $9.86 per hour for large employers and $8.04 for others. The new rates will be:
- Large Employers ($500,000 or more in annual gross revenues) - $9.86 per hour
- Small Employers (less than $500,000 in annual gross revenues) - $8.04 per hour
- Wisconsin can still pay Federal minimum wage for tipped employees, which is $2.13, as long as their tips per hour and the $2.13 brings their wage to $7.25 per hour.
- Minneapolis: These rates do not apply to work performed in the City of Minneapolis, which has higher minimum wage rates. Minneapolis is currently at $11.25 per hour for large businesses (more than 100 employees) and $10.25 for small businesses. The next increase for Minneapolis will be July 1, 2019, when rates increase to $12.25 for large employers and $11.00 for small businesses.
- St. Paul: The City of St. Paul recently approved a city minimum wage that incrementally increases the wage to $15 per hour by July of 2023 for large employers and by 2027 for small. The first bump for both large and small businesses occurs on July 1, 2020, so the state minimum wage will apply until then.
As a restaurant owner, you must follow whichever law, federal, state, or even local, is the most generous to employees. The Minnesota minimum wage is higher than the federal minimum wage, so employees who are covered by both laws, must be paid the higher Minnesota minimum wage.
Minnesota employers are prohibited from taking a tip credit against the minimum wage. Minimum wage rates apply to all hours worked and employers may not count tips received by an employee toward the payment of minimum wage.
You may be able to claim a credit for social security and Medicare taxes paid or incurred by an employer on certain employees’ tips. You may claim this credit if you meet BOTH of the following conditions:
- You had employees who received tips from customers for providing, delivering, or serving food or beverages for consumption if tipping of employees for delivering or serving food or beverages is customary.
- During the tax year, you paid or incurred employer social security and Medicare taxes on those tips.
Generally, the tip credit equals the amount of employer social security and Medicare taxes (7.65%) paid or incurred by the employer on tips received by the employee.
Restaurant employees are required to report all income, even cash tips received by employees, to the IRS. Employees will often miscalculate their tips to try to evade being taxed. This makes it more difficult to manage restaurant payroll accurately. The Internal Revenue Service has a form to help your restaurant track tips for the most efficient reporting.
Payroll Deadlines & Processing
Data entries should be checked twice to ensure hour and wage entries are correct before processing. If hourly wages or employee hours are entered incorrectly, it could cost your restaurant a large sum of money. Also, as a restaurant owner, you must be aware of deadlines for depositing payroll taxes to federal, state, and local agencies to avoid late penalties and interest charges.
Affordable Care Act Reporting
Under the current law, the Affordable Care Act (ACA) requires employers with 50 or more full-time employees to offer minimal essential health care coverage to their employees and report this information to the IRS. The purpose of the reporting is to identify employer’s full-time employees, whether they were offered coverage, and the cost of that coverage.
This reporting is used by the IRS to determine any applicable penalties and verify an employee's subsidy eligibility. For the 2018 plan year, if you have 50 or more ACA full-time employees, you could be subject to an excise tax for failure to offer a health care plan that is minimum essential coverage to at least 95 percent of your full-time employees. The excise tax would be assessed if one employee obtains subsidized coverage through a public health insurance exchange.
Many restaurant owners seek professional assistance navigating the complexity of restaurant payroll. Restaurant Accounting has been a key practice area of ours since 1971. Our Hospitality Accounting Group has a full-service payroll department to assist our clients with payroll processing. We provide a complete, customized solution for your payroll needs. Click here for more information.