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All the Tips- Restaurant Payroll

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Running a bar or restaurant is time-consuming, demanding, and stressful. Multiple managers working different shifts and managing separate departments can be confusing, especially if communication is lacking. The restaurant industry has a high turnover rate so, it can be difficult to keep track of staff. Along with all of these issues, restaurant payroll can be complicated too. Whoever is in charge of running restaurant payroll have to consider:

  • Minimum wage laws
  • Tips
  • Overtime 
  • Scheduling 

Often, it's easier to trust an experienced payroll provider to handle your restaurant rather than attempting to factor all these considerations yourself. 

Minimum wage 

Most restaurant employees earn minimum wage plus tips. If you're an employer running payroll, you'll have to understand how to factor minimum wage, tips, and how they affect restaurant payroll. 

The federal minimum wage in 2020 is $7.25 an hour. States also set their own minimum wage rates, as do some cities. These changes can be a lot to keep track of, but you have to pay your employees the highest applicable minimum wage. According to the U.S. Department of Labor, “Many states also have minimum wage laws. In cases where an employee is subject to both the state and federal minimum wage laws, the employee is entitled to the higher of the two minimum wages." Employees covered under the Fair Labor Standard Act should receive the minimum wage. There are some FLSA exceptions but, tips impact the actual wage being paid to the restaurant staff. 


Tips make up the majority of income for most restaurant staff. Tips have a substantial impact on how you calculate payroll. FLSA laws draw a clear line between tipped and non-tipped staff. Any employee who regularly receives more than $30 a month is a tipped employee. Tips count towards an employee's salary. This is important because it affects your obligations for paying minimum wages. FLSA has a FICA tip credit. This is the net amount of tips an employee earns, worked out on a per hour basis, and an upper limit of $5.12 an hour. For example, if you have an employee who earns $2 an hour in tips, you need to pay that employee a minimum of $5.25 so that their earnings total $7.25. On the other hand, for an employee who makes $10 in tips per hour, you can count that $5.12 of that as FICA tip credit. That employee needs to be paid $2.13 per hour to bring them up to minimum wage. This rule only applies to tipped employees and is subject to the same regional variations of other minimum wage laws. 

Tip pooling is now officially recognized. Tip pooling means a tipped staff pool some or all tips into a single pot then everyone slits the pot at the end of a shift. Employers can apply a FICA tip credit to the staff who benefit from tip pooling, but each individual must still earn minimum wage in all circumstances. For each employee the tip credit is a factor of the net amount of tips they take home; their donations to the tip pool do not count. 


Staffing is an ever-present challenge to restaurant employers. If the restaurant is slammed on a Saturday night, employees will likely have to stay for overtime. If the restaurant is slow on a Wednesday afternoon, you might have to tell some staff to go home. As you expect, this all impacts payroll. 

FLSA rules require employers to pay overtime to any employee working more than 40 hours per week. The Federal overtime rate is 1.5 times an employee's normal rate. Overtime is only applied to additional hours worked. For example, if someone works 50 hours in one week, you would pay 40 hours at their standard rate and 10 hours at the overtime rate. The FLSA states you can apply for the tip credit at the normal rate to overtime payments. The FICA tip credit is still capped at $5.25 for overtime payments. This means that if you're paying an employee the overtime rate of $10.88, you will have to pay the remaining $5.66 for each hour worked. 

Staying Compliant 

Running payroll for a restaurant is very complicated. With online payroll software, you can relax knowing your business will stay compliant. The software automatically calculates how much your tipped employees should be paid. This will allow you to look at how many hours your employee worked and register if they didn't make enough tips to make minimum wage. 


There are no federal requirements for restaurant scheduling. However, there is a growing trend of fair scheduling legislation and a movement to compensate workers accordingly for unpredictable scheduling. The Secure Scheduling Ordinance in Seattle states that employers must post schedules 14 days in advance. If a scheduling change is made after the schedule is posted, employers must compensate staff for the disruption. Not every state will follow Seattle's with this but restaurant owners should be cognizant about fairly scheduling employees to the best of their ability. If you have a payroll software service, scheduling can become much easier for managers. With Saas (software as a service), communication between you and your employees will be simplified and the changing of shifts will be easier than ever. Employees can request time off and the manager receives a notification of when the request is put in. 

Running restaurant payroll is a complicated business, and the last thing you should be concerned about is difficult payroll. But thankfully, Dominion Systems is an experienced, single-source payroll provider with the tools to help! Our software accurately and timely handles payroll for restaurant employees and calculates overtime. You can even run an Overtime Report to create more effective schedules for your staff.


Interested in learning how Dominion Systems can help your company?

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