How Tips Can Affect Your Payroll Process - What to Know
No matter how far the world has progressed and how much technology has evolved, many businesses in New York still struggle with one problem that has troubled many before them: payroll.
The complexities of fulfilling payroll
To the uninitiated, the process of tackling wages in one’s company can seem like a simple task that involves complying with what’s stated in every employment contract and making sure that everyone’s paid on time. Although it may seem simple at first, the complexities of payroll are guaranteed to pop up early into the business ownership experience because of all the factors to deal with, such as:
Taxes
Paid leaves
Bonuses
Benefits (such as healthcare and insurance)
Given the sheer amount of number-crunching that has to be done, it’s easy to see why many businesses end up struggling with “simply paying employees properly” in the first place. On top of all the complexities involved in a standard payroll processing workflow, the tips earned by your employees can make matters more difficult if you aren’t careful.
Why tips matter in your payroll processing
For any business that partly relies on the extended generosity of its customers, tips are a vital factor to consider when managing the financial rigidity of one’s business and fulfilling payroll obligations. Tips, as a matter of fact, go far beyond being mere tokens of appreciation because they can comprise up to 60 percent of the income of a restaurant’s employee.
Beyond the fact that they’re essential to the satisfaction of bartenders, chefs, servers, and cooks, what makes tips a vital part of any business payroll is that they’re taxable income. Since they’re technically regarded as an entry in one’s own balance sheets, employers should account for them in the payroll process, but they can be quite complicated given how the overall income from these payments can vary over time.
Two tips to consider
Taking care of your employees, managing your payroll, and dealing with the intricacies of income via tipping doesn’t have to be a long-winded process as initially expected. To best understand the ins-and-outs of tipping in the context of the payroll process and handle your finances much more efficiently, here are two tips well worth considering:
Tip #1: Familiarize yourself with the local lawsGenerally, the only way you can effectively and efficiently handle the tip-related aspect of your payroll process is to get acquainted with your local laws and follow them.
Everything you’ll need to know about paying your hourly employees and factoring additional payments and tips into your accounts and tax returns can be found in the Fair Labor Standards Act (FLSA). By taking the time to read through the necessary pieces of documentation and brush up on any additional requirements (such as FICA tip credit), you can pinpoint which factors need to be worked into your payroll process. Tip #2: Understand the importance of tip credit and its relationship to your employees’ timeIf you’re looking for a more sustainable way to manage your tip-related payroll duties, then you should understand how you can leverage the aspect of using tip credit to follow a more organized system of filing. Tip credits, for the most part, are provided by the FLSA to mitigate any potential mix-ups or charges that may happen on tasks that do not directly generate tips. It is important to note, however, that tip credit can’t be used if a tipped employee spends more than a fifth of their work hours on tasks that don’t necessarily generate tips!
Conclusion
Dealing with your payroll, managing the tips that your employees get, and configuring how much tax has to be paid based on these extra bits of income can prove to be quite difficult at first. Nevertheless, keeping the right tips in mind can make the task much easier for you in the long run. If you are looking for reputable bookkeeping services in New York to handle your finances, get in touch with us today to see how we can help!