Common and Costly Payroll Mistakes Restaurant Owners Make
Ask ten small business owners what the worst part of running a business on your own is for them, and chances are that a majority of them will say “payroll.” Unless your restaurant payroll process is automated, it can be incredibly tedious and time-consuming.
Worst of all, it’s completely unavoidable. It’s also one of the aspects of running an independent business that is most prone to error. Keeping clean books as an independent restaurant owner is especially hard. Running a restaurant is much more dynamic and unpredictable than running a software startup, for example.
You need to pay your employees, some full-time some part-time, keep track of inventory, supplies, pay your rent, invest in marketing: that’s already a lot of bills to think about, especially for one person or a small group of new business owners.
Looking to streamline your payroll process and reduce your chances of making errors that could slowly but surely run your restaurant into the ground? Then be on the lookout for these classic mistakes that restaurant owners very commonly make when trying to run payroll independently.
Simple Human Error
Human error is a huge problem when trying to keep your payroll numbers clean, but it doesn’t have to be; not in 2015. It’s hard to believe, but according to studies from this year, 65 percent of companies that have 50 or fewer employees are still scheduling them using pen and paper.
Scheduling restaurant staff using pen and paper, or even spreadsheets, is an unforgiving task for many reasons. Not only are your schedules subject to human error, often leading to miscommunication and missed shifts, but your timesheets are also at risk of being botched.
Restaurant payroll errors made due to sloppiness and human error can only lead to two things, neither of which are good: overpaying your staff (and losing money) or you’re underpaying your staff (and angering them).
Allowing Employees to Beat the System
Like it or not, you’re always going to have employees who are going to try and cheat the system you have installed for tracking the time they are working. This can be an especially prevalent occurrence in restaurants. Restaurants aren’t your regular 9-5 type businesses, many shifts are overlapping and employees’ shift are ever-changing. This makes it harder for managers to keep track of their employees and at the same time, it creates an environment in which it’s easier for employees to cheat.
According to a recently published study by Software Advice, “time theft” is a serious issue for companies that have hourly workers. The study claims that over 40 percent of hourly workers interviewed admitted to exaggerating the length of their shifts when punching out. In fact, a quarter of the interviewed employees claimed that they do this in between 76% and 100% of the time.
These statistics don’t tell the entire tale, however. This doesn’t mean that a majority of hourly employees are “crooked.” More than anything, it means that the system you are using is far from ideal. Sure, there are many cases of intentional abuses, but the unintentional payroll exaggerations are just as dangerous and end up losing you just as much money when all is said and done.
If you don’t have an effective way to manage timesheets and payroll, your losses will end up scaling along with the size of your business and staff. Obviously, this is a leak that needs to be plugged as soon as possible if you want to increase your profit margins.
Removing Employees from the Process
When it comes to methods associated with better payroll practices, many restaurant managers come to the wrong conclusions. For example, if a manager understands that employees can cheat the system, the common reaction to this is to leave employees out of the process completely.
This is not the solution. The solution is to upgrade the way you handle your payroll, not to restrict your employees’ insights into the process even further and, essentially, leave them in the dark.
Excluding your restaurant employees from the process entirely is the absolute worst thing you can do. Remember, this is their livelihood, and they want to know what’s going on. You should realize that the process is important to them as it is to you. And that’s why you should actually be encouraging them to know more.
Include your employees in the process. Hold regular meetings explaining to them how your payroll system works. Give them access to their payroll reports so that they can understand how it all works.
Many restaurant managers wrongfully assume that restaurant payroll errors and employees cheating the system are simply part of the deal. They believe that these things just come with the turf and that they should be accepted.
That couldn’t be farther from the truth. Why accept the fact that you are losing money due to payroll errors when there is something that you can do about it?
Not only will these losses never go away on their own, but payroll errors like these can come back to hurt you in other ways, namely, in your taxes. According to a report published by ADP, up to 70% of employers are likely not in full compliance with the Fair Labor Standards Act (FLSA).
The same report shows that litigation related to issues restaurant owners commonly face, such as unpaid work time and the misclassification of part-time and full-time workers, are constantly on the rise.
You’re a restaurant owner, not a tax attorney. Sure, you are used to wearing a lot of hats as the owner of a small business, but there are some things that you just can’t do on your own. Get professional help to navigate these complex waters if possible.
But if you absolutely need to do the taxes on your own because there is no room in your budget to hire help, you should at least do everything you can to make the process as easy and mistake-free as it can be. This starts with putting together an effective payroll process.
If you’ve identified with these problems and you are looking to improve the way your restaurant handles payroll, there’s really only one thing that you need to do. You need to automate payroll and decrease the chances of making these mistakes. One way to do that is to get on board with an employee scheduling and workforce management solution like Humanity.
Using an automated, cloud-based solution like ours will literally make all of these common problems go away.
You’ll be able to schedule your team without making any errors. And if you do end up making a mistake while scheduling (conflicts, overstaffing, understaffing, etc), Humanity notices these errors immediately and notifies you so that you can make the changes you need to remedy them.
If you need a better system for keeping track of when and from where your employees clock in out, Humanity can do that as well. Want to include your employees in the process and make payroll more transparent? Interested in keeping better books so that you are better prepared for tax season? Humanity can help.