Here at Keeping Your Balance, we deal with a lot of restaurant owners, with a wide variety of eateries, and all sorts of different cuisines. There’s one thing, however, that they all have in common: employees. Unless you’re a one-person food truck or stand, you’ll certainly need a fair share of help. In fact, most restaurants need a good number of employees. If you’re open to serve three meals a deal, it’s going to require multiple shifts, in contrast to many business that only need one crew that works the same 40 hours every week.
With employees come a whole new set of responsibilities, not the least of which is payroll, and its companion, employment taxes. Like almost everything else we do that involves money, Uncle Sam is looking to get paid. However, there are some additional subtleties that restaurant owners should be aware of.
- Classify Your Workers Properly
For starters, you’ll need to be clear about how you report your workers and their compensation. Payroll and employment taxes can be a hassle, so lots of restaurant owners find it tempting to classify many of their workers as independent contractors. This often seems like a good idea, as it appears to avoid the need to pay employment taxes and carry other financial responsibilities associated with employees. But this classification really isn’t at the discretion of the employer. The IRS has established the criteria that define someone as an employee: generally speaking, if someone is working on your site, under your direction and control, that person is your employee. If you fail to classify them properly, you could face some stiff penalties.
- Tips = Income
Don’t forget that tips are also income, and reporting them is not optional. This goes for both employees and employer. That means that your workers are required to keep daily records of their tips, report those tips as income, and pay taxes on them. It also means that, as employers, restaurant owners are required to withhold taxes, including Social Security, Medicare, and income tax from their employees’ tip income. You’ll also be responsible for paying employment taxes, which include federal and state unemployment taxes, and any other required fees in your state or municipality.
- Pay your employment taxes.
You’re in a cash flow business, and when times get tough, you may have to make a decision about which bills to pay. When confronted with the need to pay your food and beverage vendors and the rent on your space, restaurant owners are often tempted to postpone paying their employment taxes. This is a BIG mistake. Let’s just say that the IRS doesn’t have a sense of humor about their payments being delayed, and they’ll penalize you heavily.
- Get some professional help.
If all of this seems confusing, you’ll do well to get help from accounting and payroll professionals who are well-versed in tax laws and how they apply to restaurants. Don’t take chances at making wrong decisions when it comes to tax matters.