Tips To Better Understand Payroll Management
Oct 31, 2023
Do you process your own payroll for your employees? Or do you use a third-party payroll processor?
Like many layers of a restaurant, payroll is an added layer and sometimes complex. The reason it is sometimes complex is because of tips. But…once you realize tips are not revenue nor expenses you can then get a better understanding of payroll.
Tips are just a ‘pass-through’ that needs to be recorded as earned wages for your employees. These pass-through entries live on the balance sheet for a short time and then zeroed out when a counter-transaction is made. Sometimes tips are paid on checks, credit cards, and sometimes they are paid out in cash nightly; anyway…they need to be accounted for.
Of course, there are a lot of factors involved in the success of a great restaurant. The biggest driver of success is knowing and understanding the three prime costs:
Total food cost of goods
Total beverage cost of goods
Labor cost
Success restaurant owners need to know these costs. You should establish realistic expectations for these prime costs, budget for them, and encourage all employees to achieve them.
What I have found that a lot of restaurants do is clear the multiple withdrawals from the payroll transactions in their QuickBooks and classify them all as payroll expenses. That typically results in misrepresented payroll numbers however on the income statement. Some of those transactions are actually wages, some are tips, employee taxes, and employer taxes. Without separating them out properly, you risk misrepresenting the restaurant expenses.
Understanding that labor for one period is associated with sales for that same period is a proper business management and proper accounting. To do this, create payroll journal entries to record your payroll.
Do you already do this?
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