Bar/restaurant payroll can be complicated, but it’s important. Paying your employees correctly will help you avoid any fees, fines, and legal trouble, and it will boost the morale of your employees.
Fortunately, payroll services can help you better manage this task and make managing payroll a lot easier.
Here are the top five things for bar/restaurant owners to consider when it comes to restaurant payroll.
1. Are Your Restaurant Payroll Percentages Right?
What percentage of sales should payroll be in a bar/restaurant? What percentage should food cost be? What is the average kitchen labor cost percentage? These are some important questions to ask yourself when you are figuring out your payroll.
Of course, every bar/restaurant is unique, and there will always be exceptions. However, understanding the typical percentages will provide you with an important starting point for evaluating the financial performance of your small business.
General rules of thumb can help you to decide whether your small business finances will be sustainable in the long term. First of all, consider the Prime Cost, which is the total cost of food, beverages, and labor. This should be about 55-65% of sales. The remaining amount covers other restaurant industry expenses such as rent, advertising, insurance, utilities, and other overhead costs (with the leftover amount being profit!)
Labor cost should be around 25-40% of the prime cost, but it depends on the type of establishment. (For example, high-end restaurants provide more attentive service, certain types of food take more labor to make, etc.) The location also makes a difference as minimum wage may be higher in your particular state.
2. Are Your Employees Classified Appropriately?
Another one of the most important things restaurant owners should know when it comes to restaurant payroll is the correct classification of employees. Improper classification of overtime exempt employees could really affect your bottom line.
Check the regulations and minimum wage laws set forth in the Fair Labor Standards Act. Unless they are exempt, employees who are covered by the FLSA must be paid overtime for the hours they worked over 40 in a workweek at a rate of no less than time and a half their regular pay.
If your employees are paid a set salary rather than an hourly wage, they meet the minimum required amount of pay for exempt employees and they perform management, administrative or professional duties, they may be exempt from receiving overtime.
Don’t forget to consider tipped employees. Tips can impact the effective minimum wage.