Restaurant payroll software tips for small business owners

  • You may need a restaurant payroll guide to navigate the ins and outs of the unique restaurant payroll process.
  • Restaurant payroll is unique in that you need to calculate tip credits and might use a different minimum wage than other businesses.
  • Homebase helps make restaurant payroll easy by tracking tips, managing labor costs, and more.

How do restaurants do payroll?

Restaurant payroll management looks a little different than it does in other small businesses. While you still need to cover the basics like setting up your Employer Identification Number, payroll forms, and payroll schedule, you also need to consider extra restaurant-specific financial reports like what your employees earned for the month in tips, tip credits, and more.

Your restaurant employees receive tips as a portion of their wages, and depending on what state you live in, you are allowed to pay them less minimum wage than other employees earn thanks to the tip credit. However, some states require restaurant business owners to pay their employees the same minimum wage as other workers, so be sure to check your state laws.

You may also be subject to local Department of Labor rules that require a higher minimum wage than your state rate. Check with your local government before you start calculating average labor costs, and once you calculate that with your food costs and other operational expenses, you can get a better view of your prime costs.

Once you’ve got your minimum wage rate set, you’ll also need to implement a method for tip reporting. If you are taking a tip credit and paying your employees less than the standard minimum wage rate, make sure your employees are reporting their daily tips, both from cash and credit card, to you after each shift so that everyone gets paid correctly.

You must also follow these steps if you’re paying restaurant employees at a reduced rate:

  • First, collect timesheets, calculate gross pay
  • Gather tip reports from every tipped employee
  • Subtract reduced minimum wage from required minimum wage
  • Calculate due taxes, like Medicare, Social Security, and federal income tax based on your employees’ wages and tip income

It’s important to keep records of all reported tips for every employee to ensure proper tax payments and avoid any risks should the IRS audit you.

It’s complicated to run payroll for restaurants each pay period. Using a payroll restaurant software to help you cover all your bases is a great way to make sure you’re aware of what you’re spending on labor costs and taxes and that you’re fully compliant.

Homebase can also help you with calculating labor costs, tip and wage reporting, and more, whether you’re a fine dining restaurant or a food truck. And if you use one of the top online payroll solutions or payroll apps that we integrate with, like Quickbooks Online, we’ll send all the accurate information to the service to ensure a smooth payroll process.

Time clock app punching in employee pin

What percentage should the average payroll cost for a restaurant be?

The restaurant payroll percentage of sales consists of salaried and hourly employees’ labor costs, employee benefits like insurance premiums, payroll taxes, workers’ compensation insurance, training, discounts, and more.

As a general rule of thumb, the average payroll cost for restaurants should not be more than 30% to 35% for full-service establishments and 25% to 30% for limited-service restaurants.

If you need help with labor cost management, Homebase’s dashboard will give you great insight into how much you can expect to pay in labor costs per shift. We’ll even tell you the weather forecast so you can determine how many employees need to be on staff for the day.


“We grew so attached to Homebase that I almost didn’t switch to a better POS system because I was worried about not being able to integrate Homebase. Luckily, we were able to upgrade our POS and keep Homebase - best of both worlds!”

Marko Sotto

Owner at Barzotto

Work from anywhere using timeclock app

How to choose a restaurant payroll provider

Whether you are looking for the best restaurant accounting and payroll software or a restaurant POS with payroll integrated into it, there are many factors that go into finding the best payroll service for restaurants.

Your restaurant payroll company should make your process easy, accurate, and efficient. Homebase integrates with the top full-service payroll solutions that make sure each business’s payroll process is automated, simple, and error-free. They’ll even run payroll summary reports and prevent payroll fraud for you so you don’t have to worry.

You can also find a few employee self-service features that your team can take advantage of, which let them keep track of their payroll information like tips and wages. And when you use a payroll solution that integrates with Homebase, we’ll take care of your timesheet submissions and make sure there aren’t any errors before payroll day.

What should I look for in restaurant payroll companies?

The best payroll service, whether you’re looking for an app for your mobile device or a solution you can use on the computer (or both), your payroll company should prioritize making your payroll process as easy as possible. It should also ensure accuracy and security so you can remain compliant with federal and state laws.

Homebase integrates with the top payroll providers for small business who do all of that and more. The companies we integrate with include ADP, Quickbooks Online Accounting, Gusto, Paychex, and more. They all make it easy to connect your time and wage tracking data from Homebase, leaving you little to worry about.

Another top priority you should look for in payroll software is one that offers great customer service. After all, payroll comes with a plethora of questions, so you need a reliable partner to answer them and help with any issues that may arise.

Consider taking advantage of the free trials that different payroll solutions offer to find the best option for your restaurant. And while you’re participating in the trial, give their customer service line a call to test out how they handle your questions.

Using a payroll company that integrates with a reliable time tracking system like Homebase reduces the fear of making payroll mistakes, and also reduces the amount of time you spend running it manually. Homebase helps you avoid missed breaks, overtime errors, missed clock-ins, and other mistakes that could spark a payroll audit.