HR and Payroll for Restaurant Employees: The Path to Profitability

By Christina Lau|Dec 17, 2024|5:14 pm CST

Restaurants today operate in a difficult business climate. The labor market is tight, the industry suffers from a 74% turnover rate, and food prices have increased 28% since 2019. The consequence of these factors has led to a shocking 38% of restaurants being unprofitable in 2023.

To overcome these challenges, restaurant operators are turning to technology solutions and professional partnerships to improve operations and create efficiency. By reducing waste, simplifying time-consuming duties like payroll, improving staff management, and ensuring compliance, restaurants can drive down their operating costs to reach profitability without cutting staff or downsizing the business.

We hosted a webinar in October 2024 with Jason Schofield, Founder and CEO of Hive Virtual Operations Consultants (Hive V.O.C.), a supply chain management and group purchasing organization helping restaurants reduce costs. As a leading hospitality consultant and former restauranteur, Schofield shared the key differentiators that distinguish winning restaurants from the herd. Moreover, Schofield addressed the issues in HR and payroll processes that damage profitability.

In this blog, we’ll review the most important takeaways from the webinar and how operators can leverage a Professional Employer Organization (PEO) partnership to reduce overhead and find profitability.

HR & Payroll the Old Way: Managers Bear the Burden

Payroll and HR are two essential functions within a business. Payroll ensures the team receives compensation on a timely schedule, whereas HR is responsible for recruiting, training, employee relations, benefits, administration, and more.

Both of these functions require significant time, resources, and expertise to execute effectively. The challenge is that most restaurants don’t have the capacity to staff full time accountants or experienced HR professionals. This is especially true for small local restaurants. As a result, these duties often fall on management to fulfill, even though they rarely have a background in the field.

Challenges of Do-It-Yourself HR & Payroll Management

Trusting critical functions like HR and payroll to managers who are already overwhelmed and overworked is not an ideal arrangement. Without proper HR and payroll management, restaurants face predictable challenges. Schofield explained, “Payroll inefficiencies often reveal themselves in high employee turnover, overtime costs, and compliance issues.” And the same is true for HR functions as well.

Let’s break down the challenges involved:

• Non-compliance and Legal Issues: Professional accountants and HR professionals have a deep understanding of labor laws and compliance requirements. When processing payroll manually, restaurants risk violating these requirements and incurring financial penalties as a result. For example, operators may improperly calculate overtime rates or wages for tipped employees leading to legal consequences.
• Wasted Time on Manual Administrative Tasks: Without a modern payroll software solution, restaurant operators are left to set schedules and track payroll using Excel spreadsheets. This is a time-consuming process that must be completed multiple times a month and takes the operator away from higher value functions. Every hour spent on payroll is one fewer hour managing staff, growing the business, or improving the dining experience.
• High Employee Turnover and Difficulty in Recruitment: A turnover rate of 74% means that for every four employees a restaurant hires within a month, they should expect three more to quit. Worsened by a tight labor market, fully staffing the team becomes an ongoing effort of posting job listings, conducting interviews, onboarding new staff, and training. This is a major time-sink for management who must organize and oversee the hiring process personally.
• Inconsistent Payroll and Benefits Management: Maintaining a regular payroll cadence is a critical component of the job. Employees expect to be paid on time every time, and late payroll submissions could drive team members to seek more reliable employment. Meanwhile, management must administer benefits equitably across the staff and ensure each team member can access their full benefits. This requires a meticulous attention to detail, and mismanagement of or failing to provide benefits can increase costs or drive turnover respectively.

HR & Payroll for Restaurant Employees the Better Way: Professional Employer Organizations (PEO)

If staffing experienced accountants or HR representatives does not fit in the budget and managing these duties internally is proving too challenging, there is still one more option. A Professional Employer Organization (PEO) is an external partner that provides HR services through a co-employment model. Through a PEO, a restaurant owner can gain access to experienced HR and accounting professionals without the labor costs of staffing highly skilled employee’s full time.

On the HR side, managers retain control of day-to-day operations and the dining experience while the PEO takes on the complexities of HR, administers benefits, and completes payroll. It’s a turn-key partnership that alleviates the burden on overworked managers, improves business processes, and ensures compliance.

PEO services include:

• Payroll processing
• Benefits administration
• Tax compliance
• Employee management

Key Benefits of PEO Services for Restaurant Owners

Perhaps the most notable benefit of a PEO partnership is that it shifts managers’ mindsets. Restaurant managers are used to handling administrative tasks themselves, including payroll and HR. The truth is that they don’t have to do it all on their own. Moreover, offloading these responsibilities onto experienced professionals can actually reduce the overhead costs and lead to greater profitability.

Here are some of the key benefits making profitability possible:

• Cost Savings through Outsourcing HR Functions: Whether management handles these tasks themselves or the restaurant staffs experienced professionals, HR functions are time-intensive processes that create significant costs. A PEO offloads this responsibility from the internal team, allowing the business to make better use of managers’ time and/or save on labor costs by reducing the need for internal staff. When comparing the predictable costs of a PEO against the salaries of HR representatives and the hours management must commit to HR functions, PEOs deliver impressive cost-savings.
• Improved Compliance with Labor Laws and Regulations: PEO’s equip restaurant operators with a team of compliance experts. This team of skilled HR professionals understands the compliance requirements of the hospitality industry in all 50 states. With a PEO in your corner, you can ensure compliance, reduce legal liability, and avoid financial penalties.
• Employee Satisfaction through Better Benefits: A PEO can enable a small business to offer health insurance benefits that can compete with large corporate chains. Corporations can purchase insurance plans for their workforce at lower rates by buying in bulk. Across thousands or tens of thousands of employees, the price point per individual will be lower than if a small business were to purchase plans from the same provider. The PEO pools the workforces of all their clients, allowing them to access the bulk price breaks enjoyed by corporations. Beyond health insurance, PEOs help enable small businesses to offer additional high-value benefits like dental, vision, and a 401k savings plan.

  These added benefits go a long way in mitigating employee turnover. When your restaurant offers comparable benefits to the competition, there is less incentive for the employee to seek new opportunities.

• Increased Scalability: By designating a PEO for payroll and HR functions, management can alleviate some of the largest challenges in scaling. As the team grows, payroll becomes more complex and time consuming. The PEO equips the restaurant with an experienced team who can process payroll on-time, no matter the complexity. Meanwhile, the HR needs of the expanding team are met with consistent reliability.
• Lower State Unemployment Taxes: With a PEO in charge of tax filings, restaurant operators can be confident their taxes will be filed accurately, correctly, and on-time. This avoids the penalties and fees that come with errors or tardiness in filings. Moreover, diligence in filing and the reduced turnover from PEO efforts improve experience ratings which influence State Unemployment Tax Act (SUTA) rates.
• Employee Handbook and Refined Policies: A clear, comprehensive employee handbook can help onboard new employees more quickly by explaining acceptable behavior and policies. It ensures that each employee has a single source of truth, so management can enforce rules equally.

  Moreover, handbooks are valuable tools in maintaining consistency across locations. All employees in all locations can be organized along the same general policies as well as state-specific requirements. If your chain stretches across state lines, the handbook can be adjusted to address regulations in the new state. This turns your employee handbook into a reusable template, ready to be modified for easy expansion into new markets.

• Better Workers’ Compensation Benefits and Liability: The same principle that allows a PEO to negotiate better employee benefits also applies to Workers’ Compensation. A PEO provided by Fourth allows you to access more favorable rates, thereby reducing expenses and exposure.

Fourth’s PEO Services: The PEO Designed for Hospitality

Businesses in many industries can benefit from the services provided by a PEO, but Fourth’s PEO services are designed to meet the specific needs of hospitality. We provide dedicated HR support with professionals who understand the industry and possess experience administering hospitality benefits. Managers can process payroll and address compliance and workforce management issues without the overhead costs of staffing an internal team.

We help our clients get the answers they need, when they need them. Our team can deliver insights, resolve your issues, and keep your business moving forward. Plus, we offer a 24/7 intake form for Workers’ Compensation claims, ensuring your team is well cared for.

Learn more about how Fourth’s Restaurant PEO Services are creating success stories across the industry.

PEOs as the Pathway to Profitability

However you slice it, payroll and HR functions are a challenge for restaurants to handle internally. Operators often lack the time and expertise to fulfill this role, leading to higher overhead, regulatory penalties, and employee dissatisfaction. A PEO partnership rearranges responsibilities, so each member of the team can focus on what they do best. The PEO handles the payroll and HR functions while management runs the day-to-day operations.

PEOs lead to more efficient and more profitable businesses. They can reduce your costs, deliver better benefits to the team, curb turnover, and deliver a more effective hiring process. As labor shortages in hospitality and food price increases continue, PEO customers see an average of 27% in cost savings, a 10 – 14% lower turnover rate, and up to 9% faster growth. In this turbulent business climate, PEOs offer a compelling pathway to profitability.

Want to catch the full webinar with Jason Schofield, Founder and CEO of Hive V.O.C.? Watch the on demand recording and learn even more ways to improve your restaurant operations.