Running a restaurant is already one of the hardest jobs out there. Between staffing shortages, rising food costs, changing customer expectations, and razor-thin margins, most restaurant owners feel like they’re constantly reacting instead of planning. Payroll often ends up being one more thing that needs attention late at night or squeezed in between shifts.
Restaurant payroll adds another layer of complexity on top of an already demanding business. Tips, overtime, multiple roles, changing schedules, and evolving labor laws all collide in one place. And when payroll goes wrong, it doesn’t just cause frustration — it can lead to compliance issues, penalties, and broken trust with employees.
In this article, we’re going to break down what restaurant owners need to know about payroll. We’ll talk about why restaurant payroll is different, the types of payroll schedules restaurants use, common payroll problems we see, how recent legislation affects restaurants, and what to look for in payroll software built for hospitality. Let's get started.
Key Takeaways from this Article
Restaurant payroll includes the full process of paying your team accurately and compliantly. That includes calculating wages for hourly and salaried employees, handling tips and tip pooling, applying overtime rules, withholding and paying payroll taxes, managing deductions, and keeping proper records.
What makes restaurant payroll unique is the variety. Front-of-house staff, back-of-house staff, managers, bartenders, hosts, and kitchen employees often all work under different pay structures. Many employees work multiple roles at different rates. Schedules change week to week. Tips can come in through credit cards, cash, or tip pools. On top of that, restaurants tend to have higher turnover than most industries, which means constant onboarding, paperwork, and system updates.
Because of this complexity, many restaurant owners choose to outsource payroll or use payroll systems designed specifically for hospitality. Having the right tools — and the right support — can reduce errors, save time, and help protect the business from compliance issues.
There’s no one-size-fits-all payroll schedule for restaurants. The right schedule depends on a few key factors: cash flow, staffing model, tip structure, and employee expectations. What works well for a seasonal seafood shack may not work for a fine dining restaurant with salaried managers and a large front-of-house team.
Understanding how each payroll schedule works — and the tradeoffs that come with it — can help restaurant owners choose an approach that supports both the business and the people who work there.
Weekly payroll is very common in the restaurant industry, particularly for operations with tipped employees. Paying employees every week gives them faster access to earned wages, which can improve morale and make budgeting easier for hourly staff.
From a payroll perspective, weekly runs can simplify tip reporting and reconciliation. Tips earned in a given week are paid out quickly, reducing the risk of missing or misreported tip income. Weekly payroll can also provide clearer audit trails, especially when tips are paid through payroll rather than in cash.
The tradeoff is that weekly payroll requires tight processes and reliable systems. Payroll has to be accurate every single week, with little room for delays or manual fixes. Restaurants that rely on disconnected systems may find weekly payroll stressful without proper tools in place.
Biweekly payroll is one of the most common payroll schedules in hospitality. Employees are paid every other week, usually on the same day, resulting in 26 pay periods per year.
This schedule often strikes a balance between employee expectations and administrative workload. It gives hourly employees relatively consistent pay while reducing the number of payroll runs compared to weekly processing.
Biweekly payroll can work well for restaurants with a mix of tipped and non-tipped employees, as long as time tracking and tip reporting are handled accurately. One thing restaurant owners should watch closely is overtime. Because overtime is calculated on a weekly basis, not by pay period, it’s important that payroll systems correctly track weekly hours even within a biweekly cycle.
Restaurants rarely pay everyone the same way. Most teams include a mix of salaried managers, hourly staff, and tipped employees, each with different pay rules and compliance considerations. Understanding how these pay types work — and how they interact with overtime, tips, and labor laws — is essential to running payroll accurately and avoiding costly mistakes.
What makes this tricky in restaurants is that employees may move between roles, earn tips on some shifts but not others, or work different schedules week to week. Payroll systems and processes need to be flexible enough to handle that reality.
Most restaurant employees are paid hourly, and their earnings depend on hours worked during each pay period. This can include back-of-house staff, hosts, line cooks, dishwashers, and some front-of-house roles.
Hourly pay requires precise time tracking. Clock-in and clock-out times, meal breaks, role changes, and overtime all affect an employee’s final pay. In restaurants where employees work multiple roles at different rates, payroll must account for those variations and apply blended overtime when required.
Small errors in timekeeping can add up quickly. Missed punches, incorrect job codes, or unapproved schedule changes can lead to underpayment, overpayment, or wage disputes. Clear policies and consistent systems help protect both the employee and the business.
Salaried employees are typically paid a fixed amount each pay period, regardless of how many hours they work. In restaurants, this often includes roles like general managers, assistant managers, executive chefs, or administrative staff.
One common misconception is that "salaried" automatically means exempt from overtime. That isn’t always true. Some salaried employees are considered non-exempt under wage and hour laws and are still entitled to overtime pay if they work more than 40 hours in a week. To be expempt from overtime, employees need to earn a certain threshold each week but also need to meet certain job duties known as EAP exemptions. Because of this, tracking hours for salaried employees is still important, even when their paycheck looks the same every pay period.
Accurate recordkeeping for salaried employees also supports labor cost analysis, scheduling decisions, and compliance documentation. Assuming salaried employees don’t need oversight can lead to compliance gaps that only surface during audits or disputes.
Tipped employees are a unique pay type that adds another layer of complexity to restaurant payroll. Servers, bartenders, bussers, and other front-of-house staff often earn a combination of hourly wages and tips.
Tips are optional payments from customers and are considered taxable income. Employees are required to keep track of their tips and report them accurately. Employers, in turn, must withhold and pay certain payroll taxes on reported tip income, including Social Security and Medicare taxes.
If a restaurant uses a tip credit, it must ensure that an employee’s total earnings — hourly wages plus tips — meet or exceed the applicable minimum wage. If tips fall short, the employer is responsible for making up the difference. Tip pooling arrangements also need to be clearly defined, documented, and compliant with federal and state rules.
Because tipped employees often work variable schedules and rely heavily on accurate reporting, having clear processes around tip declaration and payroll reporting is critical. When tip handling is inconsistent or unclear, it can create tax exposure, compliance risk, and confusion for employees.
You may have heard a lot of noise lately about the “One Big Beautiful Bill Act,” especially headlines about “no tax on tips” or “overtime exemptions.” For restaurant owners, those headlines can sound promising — but also confusing.
One of the most talked-about changes in the One Big Beautiful Bill is the introduction of federal income tax credits for certain tip income and overtime wages.
Starting with wages earned in 2025, eligible employees may be able to take a federal income tax credit for:
up to $25,000 in tip income per year
up to $12,500 in overtime pay per year
For married couples filing jointly, those limits double. These credits apply only to employees earning less than $150,000 per year (or $300,000 jointly), and they apply only to federal income tax. Tips and overtime are still subject to FICA and state income taxes, and the employer’s matching obligations still apply.
Here’s the key point for restaurant owners: this is not an exemption from withholding. For now, employers must continue to withhold federal income tax, Social Security, Medicare (FICA), and applicable state taxes on all wages — including tips and overtime — just as they do today. Employees will claim the credit when they file their personal tax returns.
Even well-run restaurants run into payroll issues. Most problems don’t come from negligence — they come from complexity.
Tips are optional payments from customers, not service fees added by management. Tips are also taxable income. Employees are required to track and report their tips, and employers are responsible for withholding and paying certain taxes on reported tip income.
Problems arise when tips aren’t reported accurately, tip pooling rules aren’t documented, or systems don’t capture both cash and credit card tips consistently. Over time, underreporting can lead to tax exposure and compliance issues.
A tip credit allows an employer to count a portion of an employee’s tips toward meeting minimum wage requirements. Under federal law, tipped employees are those who regularly earn at least $30 per month in tips.
If a restaurant takes a tip credit, it must:
pay a minimum direct cash wage
ensure tips plus wages meet or exceed the applicable minimum wage
notify employees in advance that a tip credit is being used
allow employees to keep all tips, except in valid tip pooling arrangements
Tip credits can only be applied to hours spent performing tip-producing work or directly supporting that work. Under the federal 80/20 rule, if supporting work exceeds 20 percent of the employee’s workweek or lasts longer than 30 continuous minutes, a tip credit may no longer apply to that time.
If an employee’s tips do not bring their total earnings up to minimum wage, the employer must make up the difference. This makes accurate time tracking and tip reporting essential.
Separate from wage rules, restaurant owners may also be eligible for a FICA tip tax credit on their business tax return.
Because tips are taxable income, employers must pay their share of Social Security and Medicare (FICA) taxes on reported tip income. The FICA tip tax credit allows eligible employers to claim a credit for the employer portion of FICA taxes paid on certain tip wages, potentially reducing income tax liability.
This credit:
applies only to food and beverage businesses with tipped employees
is based on reported tips that exceed the federal minimum wage threshold of $5.15 per hour
equals the employer’s share of FICA taxes (currently 7.65%) on those excess tip wages
The credit does not reduce payroll tax obligations during the year. Instead, it is claimed when the business files its income tax return. For restaurants with many tipped employees, the savings can add up quickly — but only if tips are reported accurately and payroll records are complete.
Restaurant employees often work multiple roles at different pay rates. When those employees work overtime, the overtime rate may need to be calculated using a blended rate. This is one of the most common payroll mistakes we see, and it’s easy to get wrong without the right system in place.
Most restaurant workers should be classified as W-2 employees, not independent contractors. Misclassification can trigger audits, back taxes, and penalties. Just because someone works part-time or seasonally does not make them a contractor.
Restaurants bring on new employees constantly. Each new hire requires proper paperwork, tax forms, and system setup. Without a consistent onboarding process, mistakes happen — and those mistakes can follow the business long after the employee leaves.
Payroll records must be retained for several years, including timecards, pay stubs, tax forms, and tip records. Missing or incomplete records make audits far more stressful than they need to be.
Payroll software doesn’t need to be flashy. It needs to work — consistently, accurately, and in a way that fits the pace of restaurant operations. The right system should reduce manual work, lower the risk of mistakes, and help you stay compliant without adding more complexity to your day.
Accurate time tracking is the foundation of restaurant payroll. Without clean time data, everything else — wages, overtime, tips, and labor reporting — becomes harder to manage.
Restaurant payroll software should capture clock-ins, clock-outs, breaks, and job changes automatically. It should also support employees who work multiple roles or move between departments during a shift. Manual edits should be the exception, not the rule.
Time tracking tools that integrate directly with scheduling or POS systems help reduce missed punches and guesswork. When time data flows cleanly into payroll, managers spend less time fixing errors and more time running the restaurant.
Tips are one of the most complex parts of restaurant payroll, and software should make this easier — not harder.
Payroll systems should track both credit card and cash tips, allow employees to declare tips electronically, and support compliant tip pooling arrangements. The system should also apply the correct tax treatment automatically and maintain clear records for reporting and audits.
Consistent tip tracking protects both employees and employers. When tip data is incomplete or handled outside of payroll, it creates risk around tax reporting, minimum wage compliance, and recordkeeping.
Restaurants often have employees working multiple roles with different pay rates — sometimes in the same week. Payroll software needs to handle this without spreadsheets or manual calculations.
A strong system can track different job codes, apply the correct pay rate for each role, and calculate blended overtime when required. Overtime should always be calculated based on weekly hours worked, even if payroll is run biweekly.
When pay rates and overtime are handled automatically, it reduces wage disputes and helps ensure employees are paid accurately every time.
Employee self-service isn’t just a convenience — it’s a time-saver for managers.
Payroll software should give employees 24/7 access to their pay stubs, tax forms, direct deposit details, and basic personal information. When employees can answer common payroll questions themselves, managers spend less time responding to interruptions during shifts.
Self-service access also improves transparency and trust. Employees know where to find their information and feel confident that payroll is being handled consistently.
When evaluating payroll software for a restaurant, it’s easy to focus on features like time tracking or pay calculations. But compliance support is just as important — and often more valuable in the long run.
Payroll is closely tied to changing labor laws, tax rules, and state-specific programs. A payroll provider should be able to help you understand and manage these requirements, not just process payroll runs.
In Maine, restaurant owners must stay on top of several compliance areas that directly affect payroll and HR processes, including:
Maine Earned Paid Leave
Restaurants with more than 10 employees must allow eligible employees — including many part-time and seasonal workers — to accrue earned paid leave. Payroll systems need to track accruals accurately and apply usage correctly, even when schedules fluctuate.
Maine Paid Family and Medical Leave (PFML)
PFML introduces payroll deductions, employer contributions, eligibility tracking, and reporting obligations. While benefits are paid by the state, employers are still responsible for withholding and remitting contributions and maintaining accurate payroll records.
MERIT retirement requirements
Maine’s retirement program requires certain employers to either offer a qualifying retirement plan or participate in MERIT. Payroll plays a key role in managing employee eligibility, deductions, and reporting, and errors can quickly become compliance issues.
Beyond the rules themselves, guidance matters. A payroll provider should help flag when employee counts trigger new requirements, explain how laws apply to tipped and seasonal workers, and keep you informed when regulations change.
Who handles payroll depends largely on the size and structure of the restaurant. In many small or independently owned restaurants, payroll is handled by the owner, general manager, or a trusted administrator. In these cases, payroll is often one of many responsibilities layered onto an already full plate.
Larger restaurants or multi-location groups may have a dedicated payroll or HR professional, or they may centralize payroll at the corporate level. Some restaurants also choose to outsource payroll to a provider who specializes in hospitality.
In general, payroll records should be kept for at least three years, but some documents should be retained longer depending on federal and state requirements.
Common records to retain include:
employee timecards or timesheets
pay stubs and payroll registers
tax forms such as W-4s, W-2s, and quarterly filings
tip records and tip pooling documentation
wage rate and job classification records
Certain records related to taxes, benefits, or disputes may need to be kept for up to seven years or more. If a restaurant is audited or involved in a wage dispute, having complete and organized records can make a stressful situation far more manageable.
Digital recordkeeping makes this easier. When records are stored electronically and backed up securely, they’re easier to retrieve, review, and share if needed.
Tipped employees have specific responsibilities when it comes to reporting their income. By law, employees who receive tips are required to:
keep a daily record of tips received, including both cash and credit card tips
report tips to their employer for any month in which tips exceed $20
report all tip income on their personal tax return
These rules apply regardless of whether tips are received directly from customers or through a tip pool. Accurate reporting is important because tips are considered taxable income and factor into payroll tax calculations.
From an employer perspective, clear communication and simple reporting processes help employees meet these requirements and reduce confusion or underreporting.
Yes. Tips are taxable income, and restaurants have payroll tax responsibilities related to reported tips. Employers must withhold taxes from employee tips and pay the employer share of applicable payroll taxes on reported tip income, including Social Security and Medicare taxes (FICA). Tips may also be subject to state income tax withholding.
Proper tip tracking and reporting protects both the restaurant and its employees by ensuring wages meet minimum requirements and taxes are handled correctly.
Yes — and often more than restaurant owners realize.
Employees notice payroll issues quickly. Late paychecks, incorrect hours, missing tips, or inconsistent deductions impact employee trust. Even when mistakes are unintentional, repeated payroll problems can make employees feel undervalued or insecure, which contributes to higher turnover.
In an industry already challenged by staffing shortages, payroll accuracy plays a quiet but critical role in employee satisfaction. When pay is correct and consistent, employees can focus on their work instead of worrying about whether their paycheck is right.
As we head into 2026, restaurant payroll is getting more complex — from tipped wages and overtime to new legislation and state-specific requirements. Most challenges aren’t caused by mistakes, but by how quickly the rules and expectations change.
The good news is that clear processes, accurate tracking, and the right support can prevent most payroll issues before they start. When payroll runs smoothly, employees are paid correctly and on time, trust stays strong, and owners can focus on what matters most — running a great restaurant.
Contact us if you need help with your payroll processes!
Written: January 2026
Written by: Jon Portanova