Happy New Year from Pink Payroll!

The New Year is a great time to work on some new business goals. Whether your goal is to increase sales, work less, or just maintain status quo, now is your time to set yourself those benchmarks. But while new goals are great, far too many of us never reach our New Year’s business benchmarks. Here’s what you can do to maximize your goal’s potential:

In the beginning, business seemed so simple. It was just you and your best friend selling lemonade. But as your business grew, so did your obligations. One of these obligations was payroll, and if you're like many business owners, you decided to outsource it. 

Payroll is a complicated matter for the average business owner: With so many state laws, federal laws and deadlines, it’s easy to see why payroll is a task best left to the professionals. But with so many payroll services out there, it can be hard to choose just one. Picking the wrong payroll company will cause you nightmares down the road, while picking the right one will make payroll a stress free part of your business. There are many important factors to consider when choosing your payroll service. So whether you are outsourcing payroll for the first time, or are looking to change your existing payroll service, here are 6 important factors to consider.

It is a common practice for customers to tip their servers at restaurants. For servers, cash tips are expected to compensate their low hourly wages. In most cases, a server’s tips make up an easy majority of their total wages, and not surprisingly, most of these tips go unreported and untaxed. After all, cash tips are considered the main perk of being a waiter or waitress, so its easy to understand why employers and staff alike don’t want to disclose their income from tips.

But don’t assume the government is unaware of this and that they aren’t after restuarants who do this. Being that so much money is made through tips, the government has taken a firm stand on taxing them. There is a strict set of rules that outline how restaurant owners are supposed to collect, distribute, and report their employees’ tips.

With these rules come a number of employee and employer responsibilities:

Employer Responsibilities

Collect tip reports from every employee at the end of each payroll period. You can do so more often if you feel it is necessary.

Withhold income taxes and FICA taxes and report your employees’ tips to the IRS. Tips must be reported no later than the 10th day of the month following the pay period.

File form 8027 if your restaurant is considered a “large business”. This must be done every year, and consists of reporting to the IRS your restaurant’s charged sales, charged tips, total sales and total tips.

Employee Responsibilities

Keep a daily record of tips in a tip log that your employer provides you. This way your employer can apply the necessary FICA withholdings properly.

Report all yearly tips with IRS publication 1244.

TRAC Program

As an incentive to make employers comply with tip-reporting laws, the IRS has implemented the Tip Reporting Alternative Commitment (TRAC) program. By signing up and agreeing to the TRAC program, employers agree to:

-Implement tip-reporting procedures

-Educate their employees about tip-reporting

-Stay on top of all tip-reporting paperwork, reporting, and related obligations

In return, the IRS agrees not to access any FICA taxes from your restaurant, unless it has individually looked into all employees under-reporting their tips in your business. The IRS will not instigate any audits of your business while you are enrolled in TRAC , though it may individually examine your employees for under-reporting.

More info on the TRAC system can be found at www.irs.gov/pub/irs-utl/foodtrac.pdf.

How You Can Educate Your Employees

Warn your staff about the risk of underreporting their tips. Let them know they could face fines or even time behind bars for lying about the amount of tips they make.

Use technology. One way of making your employees comply is to program POS systems to require daily tip disclosure before your employees can clock out.

Repetition: Repetition is a powerful way of getting your message across. It will let your employees know you are serious about this issue. Reiterate in staff meetings the importance of proper tip reporting.

Pink Payroll is a nationwide payroll company. We aim to provide affordable, easy payroll to our clients throughout the 50 states. If you would like to learn more, visit our services page or request a free payroll quote.