Do You Know How to Pay Your Employees?

As you begin planning for your new business, are you fully aware of the payroll responsibilities you are about to take on? Payroll laws can be one of the most confusing areas for restaurant owners, and for good reason: labor laws differ depending on your location. While the Federal government creates the labor laws we follow in this country, it is up to the states to interpret those laws. No matter what state you’re in, though, there are a few basics you should understand about payroll.

How do I set up payroll?

Each state will be different, but generally, your first step is to contact your state’s Department of Revenue or equivalent division to obtain a payroll or withholding tax account number. Your state can help you determine your filing frequency (quad-monthly, semi-monthly, monthly, etc.) and help you set up withholding and payroll tax remittance.

What reports will I have to file?

When a new employee joins your workforce, you are required to confirm that they are lawfully allowed to work in the US. This is done by filing form I-9, Employment Eligibility Verification, on their behalf. New employees also need to fill out Form W-4, Employee’s Withholding Allowance Certificate, which informs you how much Federal tax to withhold from their paychecks every period. Many states have a state-specific version of this form, as well.

Four times per year, you need to file Form 941, Employer’s Quarterly Federal Tax Return, which reports all payroll-related amounts collected, paid, and remitted that quarter. In addition, at the end of the year, you need to report Form W-2, Wage and Tax Statement, which serves as the employee’s main tax document showing their gross wages, amounts withheld, and taxable wages and Form 940 for federal unemployment.

What will my employees’ pay stubs look like?

A pay stub will begin with an employee’s gross pay. This is the amount earned before any deductions. From that amount will come pre-tax deductions such as 401(k) contributions, HSA contributions, and commuter benefits. Next, Federal and state taxes will be taken out, like Social Security, Medicare, and withholding taxes. Some states will require unemployment taxes to be withheld, as well. The remainder will be the employee’s take-home (or “net”) pay.

I’m nervous I’ll do it wrong. What else do I need to remember?

Here are a few quick tips to remember:

• File your payroll taxes timely, no matter what. The Failure to Deposit Penalty can be significant, and it can be difficult to catch up if you skip a pay period.
• Fill out your forms correctly the first time. You may be dinged for miscalculated withholding amounts.
• Keep clean records. The Fair Labor Standards Act dictates what records to keep, and how they should be maintained.
• Choose a payroll provider you trust. If possible, find a provider who works with other restaurants.
• Protect employee information. Confidentiality should be of the utmost importance.

Our restaurant advisory group can help you set up payroll for your restaurant. Contact us.