Restaurant payroll basics

Why restaurant payroll is different

Compared with most businesses, restaurants have more employees per dollar of sales, high turnover, many part-time schedules, cash and card tips, tip sharing and employees who work more than one role. Each of these adds payroll steps. Getting the basics right protects your team’s pay and your business from back-wage claims. Our guides on restaurant labor cost percentage and tip-outs cover related topics.

To total hours with breaks and overtime, use our time card calculator.

Tipped wages and the tip credit

Under the FLSA, a tipped employee is one who customarily and regularly receives more than $30 a month in tips. For these employees, federal law allows:

• A cash wage of at least $2.13 per hour.
• A tip credit of up to $5.12 per hour, counted from the employee’s tips, to reach the $7.25 federal minimum wage.
• If wages plus tips fall short of the minimum wage in a workweek, the employer must make up the difference.
• Employees must be informed in advance about the tip credit.

Many states set a higher minimum wage, a higher tipped cash wage or do not allow a tip credit at all, and some cities set their own minimums. Always apply the rule that gives the employee the most. Our glossary entry on the tip credit has more detail.

Overtime for tipped employees

Overtime for a tipped employee is calculated on the full minimum wage, not on the cash wage. Under federal law, with a $2.13 cash wage and a $5.12 tip credit, the overtime rate is 1.5 x $7.25 = $10.88, minus the same $5.12 tip credit, so the employer pays a cash overtime wage of at least $5.76 per hour. Where state minimum wages are higher, the figures are higher too. Our overtime calculator helps check the math.

Tip reporting and taxes

1. Employees who receive $20 or more in tips in a month must report them to the employer, usually by the 10th of the following month.
2. The employer withholds income and payroll taxes on reported tips, along with taxes on wages.
3. Large food or beverage establishments may need to file an annual information return on tips and, in some cases, allocate tips.
4. Some employers can claim a federal tax credit for part of the employer social security and Medicare taxes paid on tips.

These are summaries of IRS rules; confirm the details for your business with a tax professional.

Employees with more than one role

A server who also hosts, a cook who also washes dishes or a bartender who also manages the floor may be paid different rates for different work. For each workweek, the overtime rate is generally based on a weighted average of all rates, as explained in our regular rate guide. For tipped employees, time spent on non-tipped duties can affect whether the tip credit may be taken for that time. The DOL’s rule on this “dual jobs” question was set aside by a federal court in 2024, so check current guidance and your state’s rules before taking a tip credit for side work.

Breaks, split shifts and reporting time

Restaurants often run split shifts, early sends and late closes. Depending on your state, these can trigger split shift premiums, reporting time pay, meal and rest break penalties or, in some cities, predictive scheduling pay. Build these rules into your scheduling and payroll setup.

A weekly payroll routine

1. Close out the week: make sure everyone has clocked out and missed punches are fixed.
2. Approve hours by employee and role.
3. Reconcile tips: card tips, cash tips declared and tip-outs or pool distributions.
4. Check that every tipped employee reached at least the minimum wage for the week after the tip credit.
5. Review overtime and any premiums owed.
6. Send approved hours and tip data to payroll before the cut-off.

Tip pools and tip sharing

Tips belong to the employee. An employer may require a tip pool, but managers and supervisors may not keep any part of employees’ tips, and the employer may never keep tips for itself. When the employer takes a tip credit, a mandatory pool may include only employees who customarily and regularly receive tips, such as servers, bussers and bartenders. When no tip credit is taken, federal rules allow a pool that also includes back-of-house staff like cooks and dishwashers, though some states are stricter. Write the pool rules down, share them with staff before they apply and keep a record of each distribution.

Records to keep

• Hours worked each day and each workweek, by role where rates differ.
• Cash wage paid, the amount of tip credit taken and the tips reported by each tipped employee.
• Tip pool or tip-out distributions for each period.
• Overtime hours and the rate used.
• Proof that employees were informed about the tip credit.

Keeping these records together makes it much easier to answer a wage question from an employee or an agency. See our guide to record retention for how long to keep them.

Common restaurant payroll mistakes

• Calculating tipped overtime on the cash wage instead of the full minimum wage.
• Taking a tip credit without informing employees first.
• Including managers in tip pools.
• Rounding punches in the employer’s favor.
• Not paying for pre-shift meetings, side work before clock-in or post-close cleaning.
• Missing state premiums for breaks or split shifts.

Clean hours make restaurant payroll easier

Every step above starts with accurate hours by employee and role. EZTime lets staff clock in on a shared tablet, the mobile app or NFC, records breaks, and gives managers hours by role for each shift, so tip pools, tip credits and overtime are calculated from real data. Approved hours export for your payroll provider. See EZTime for restaurants.

Frequently asked questions

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