The corner cafe, upscale bistro and fine dining restaurant serve different dishes, but all face at least a few common issues when it comes to accounting. Restaurant accounting includes items unique to the food service industry. Whether you outsource your accounting function or not, you would benefit from learning at least the basics.
Payroll probably represents the largest portion of your expenses. Though payroll expenses vary by region, type of restaurant and the restaurant itself, labor costs typically range from 25 to 40 percent of gross revenue.
Labor costs include salaried employees, hourly wages, benefits, taxes and tips. Minimum guidelines for all of these labor expenses are in place on the federal level, but there is much variation at the state and even local levels. In Washington, for example, employers must pay employees a minimum of $12 per hour as of April 2019. But the city of Seattle requires that employees receive a minimum wage of $15 per hour, which is twice the national minimum.
Be mindful of which wage laws and minimum wages apply to your workforce, especially when it comes to the handling of tips. Employers have multiple obligations for documenting and reporting tip income, as well as for paying taxes on that income.
According to the U.S. Department of Labor, a tipped employee is one who regularly receives at least $30 a month in tips.
Under Internal Revenue Service regulations, employees must keep a daily record of the cash and non-cash tips received, either directly or indirectly. If they receive at least $20 in tips during the month, then employees must report the amount of cash tips to their employer by the 10th of the following month. (Employees must report any non-cash tips on their individual tax return. They do not report these to employers.)
Employers must keep their employees’ tip reports. They also must withhold employee income taxes and the employee share of social security and Medicare taxes for both wages and tip income received. You must report this information to the Internal Revenue Service on the quarterly federal tax return filing (Form 941). Employers also must pay the employer share of social security and Medicare taxes for the total wages paid to tipped employees as well as the reported tip income.
Owners of large food and beverage establishments have additional tip reporting requirements. They must file Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips.
If you operate a large food and beverage establishment (which means, according to the Internal Revenue Service, on a typical business day you employ at least 10 staff, among other criteria), then you might need to allocate tips. If the total reported tips total less than eight percent of your gross receipts, then you need to allocate the difference among your tipped employees.
Be sure you do not treat service charges as tips. Tips are voluntary payments from customers to employees. Service charges are non-optional fees charged to the customer by the restaurant. Service charges are part of the restaurant’s gross income.
Under the Federal Labor Standards Act, employers may pay tipped employees a reduced wage as long as that wage plus the tip income total the minimum hourly wage. The employer’s reduced liability is known as a “tip credit.” The federal guidelines as of April 2019 allow for up to $5.12 per hour in tip credit. This means that employers must pay an hourly wage of at least $2.13. Only 17 states match the federal minimum cash wage amount, though. Some states do not allow tip credits at all.
If your state does allow tip credits, then you must calculate the appropriate tip credit every payroll. You must make sure that the employee earns at least the minimum wage through a combination of cash wages paid by you and tipped income earned by the employee.
You probably spend about a third of your expenditures on your food and beverage inventory. Accurately tracking and effectively managing your inventory is critical to daily operations as well as long-term profitability. Without proper inventory management you can not accurately track the cost of goods sold.
Cost of Goods Sold
Knowing the cost of goods sold, or COGS, is one of the key accounting terms restaurant managers should know. It is essentially a calculation of how much it costs to make your menu items. COGS is typically one of a restaurant’s largest expenses. Identifying your COGS allows yo