Restaurant Payroll and HR — Solved! The Value of a PEO Partnership

By Christina Lau|Jul 12, 2024|10:46 am CDT

Like the Greek myth, running restaurant operations can feel like pushing the same boulder up the same hill every day, only for it to roll back down. Completing day-to-day tasks alone is a full-time job, but after the last customer has left for the night, there is a mountain of back office HR and payroll work yet to be done. Managing hiring and training in an industry known for its high turnover is a constant challenge. Meanwhile, a dynamic regulatory landscape threatens significant legal fees, penalties, and litigation unless the myriad labor laws, health and safety regulations, and compliance requirements are addressed.

It’s perfectly understandable, given the time constraints and overwhelming docket of responsibilities, why 33% of employers make regular payroll errors according to the IRS. There just isn’t the space to think and execute effectively, but there is a solution.

Small chain and single location operators are solving restaurant payroll challenges by partnering with a professional employer organization (PEO). Through this co-employment relationship, organizations can streamline their hiring process and access experienced HR professionals equipped to ensure compliance with all relevant laws and regulations.

In June 2024, Fourth’s Senior VP of Operations, Gene Cabrera, hosted a webinar with Chris Carrigan, Fourth’s Human Capital Management product expert to discuss how restaurant operators can navigate out of these dynamics and the value a PEO can bring. Get the key information from that webinar here on the blog.

What is a Professional Employer Organization (PEO)?

A PEO is a managed service agreement with a third party organization to support the HR and payroll functions of the business. As restaurants grow, they reach a middling stage where the operation is robust enough to require HR and payroll support but not profitable enough to staff a full-time HR department. The PEO bridges this gap by offering access to experienced professionals for less than the cost of a full team.

Businesses lean on PEOs to complete a range of services, including:

• Payroll processing
• Benefits administration
• Recruitment
• Training
• Labor law compliance
• Garnishments
• Workers compensation

A PEO enables management to offload administrative tasks, so they can focus their efforts on daily operations, growth, and the dining experience. Together with a PEO, the restaurant enters into a co-employer model. The PEO and client restaurant share responsibilities and liabilities for the workforce, while the client does what they do best — run the daily operations and delight their customers.

Benefits of a PEO Partnership for Restaurant Payroll and HR

Professional employer organizations offer flexible agreements to meet the needs of their clients, so the range of benefits an organization might receive varies from contract to contract. That said, common benefits include:

• Cost Savings: Relative to in-house support, PEOs provide a more cost-effective option. In addition, the collective purchasing power of a PEO enables restaurants to offer superior benefits and insurance at lower prices.
• Time Savings: Restaurant operators can offload tedious administrative tasks to a PEO, thereby freeing up more time to focus on growing the business and improving the customer experience.
• Scalability: Flexible service offerings from a PEO enable the partnership to scale. Add or remove services overtime to match the needs of the business as it grows.
• HR Expertise: Restaurant operators are rarely trained in HR and compliance responsibilities. Leverage experienced HR professionals who can offer informed guidance on labor laws and regulations.
• Risk Mitigation: The shared liabilities between the restaurant and the PEO mitigates risk related to compliance, workers’ compensation, and similar workforce management issues.
• Talent Attraction and Retention: Compete with the largest competitors in your market for top talent with a comprehensive benefits plan and professional development opportunities for your team.

Learn more about the benefits of a PEO partnership in this brief video:

How Does a PEO Help Attract and Recruit Talent?

A professional employer organization helps their clients retain and improve their workforce on two fronts.

First, the PEO delivers the tools and expertise to execute an efficient, seamless recruiting process. Transitioning your hiring process from a decentralized, informal process using Microsoft Excel to leveraging a sophisticated Applicant Tracking System (ATS), electronic onboarding, and e-verify helps move applicants from screening to interview to onboarding in a clear and steady rhythm. This is important for acquiring the best talent in the applicant pool. Delays and hitches in the process provide your competitors an opportunity to snatch up star players.

Second, the PEO can also turn your business into a more attractive place to work by making it possible to offer top-tier employment benefits — even as a small chain or single location.

Sound impossible? It’s just a matter of mathematics.

How Does a PEO Offer My Employees Better Benefits?

Corporate restaurant chains can offer better employment benefits than their smaller competitors while still remaining profitable, because insurance policies offer a break in pricing with higher headcounts. The corporate chain staffing hundreds of workers can purchase better benefits at a lower cost-per-person through bulk pricing.

A PEO empowers their clients to do the same. By pooling the workforces of all their clients, they can reach a headcount approaching or exceeding your corporate competitors. Through this multi-employer policy, you can access better rates and benefits for your team.
Benefits procured through a PEO include 401k plans, health, dental, life insurance, dependent care, and more. Of those, the most frequently added benefits by new PEO clients are life insurance at 44%, retirement plans at 26%, and health benefits at 26% according to the NAPEO.

The ability to offer these benefits to your workforce makes all the difference in attracting and retaining talent on the job market. The best applicants go where they can get the best position. Compete with even the largest chains by leveraging a PEO.

How Does a PEO Help with Restaurant Payroll, HR, and Compliance?

The restaurant industry is subject to a dynamic regulatory landscape. Between intricate labor laws, health and safety regulations, and compliance requirements, there is a clear need for a seasoned compliance expert on the team.

Unfortunately, single location and small restaurant chains lack the resources to staff a qualified HR professional. The responsibility often falls on the restaurant operator to fulfill these duties. They do their best, but HR is neither their passion, nor their expertise. The resulting HR support ends up just enough to get by or worse — leading to fines and other regulatory penalties.

By partnering with a PEO, the organization shares the compliance risk. It is now the PEOs duty to ensure complete compliance will all relevant regulations, and the managed service contract sees to that. Organizations can leverage their PEO relationship to maintain compliance with:

• Federal Medical Leave of Absence (FMLA)
• Equal Employment Opportunity (EEO) for both Federal and State requirements
• Americans with Disabilities Act (ADA)
• Title VII of the Civil Rights Act of 1964
• Employee Retirement Income Security Act (ERISA)
• Fair Labor Standards Act (FLSA)
• And more!

How Can a PEO Lower My Cost per Employee per Year?

Beyond wages or salary, costs associated with staffing the team generally fall in two categories: training/ onboarding and insurance/taxes. A PEO can reduce the costs associated with both these groups.

As mentioned above, a PEO can help an organization offer better benefits packages to their employees, but a PEO can also negotiate better rates on other tax and insurance costs. This results in lower state unemployment taxes, lower Workers’ Compensation Insurance rates, and lower Employment Practice Liability Insurance rates.

Most importantly, however, a PEO reduces a restaurant’s turnover rate by making the organization a more attractive place to work. Turnover levels enormous costs on a restaurant as new employees need to be interviewed, onboarded, and trained before becoming productive members of the team. The National Restaurant Association estimates that staff turnover costs the average restaurant $150,000 each year. Further, the Center for Hospitality Research at Cornell University reports that losing a front-line employee costs the employer $5,864 on average.

How the PEO Process Works

Framing a PEO partnership as offloading HR or payroll for restaurants undersells the value of the relationship. A PEO offers a co-employment model, which divides the employer responsibilities between the client and the PEO. The delineation of responsibilities is formalized in a Client Service Agreement (CSA) before services are rendered, but it is important to note that the restaurant operators retain some functions and critical decision-making powers in the areas of hiring, firing, employee promotions, and scheduling.

The goal is for the PEO to take on those responsibilities that pose significant operational challenges for the restaurant. The areas that require deep subject matter knowledge, such as compliance, are perfect responsibilities for a PEO to undertake. They have the resources and experience to execute.

Retain the responsibilities you want and none of the ones you don’t. This division of labor fosters a collaborative environment while freeing operators to focus on growth.

Businesses Who Work with a PEO

At the end of the day, a PEO makes a business more successful and improves profitability. The most complex, time-consuming HR and payroll functions are passed off to seasoned experts, so the management team can focus on what truly matters — your customers, your food, and your plans for the future.

Businesses who work with a PEO experience the following:

• PEO users are 50% less likely to fail from one year to the next
• Up to 14% lower turnover rates
• Grow up to 9% faster than small businesses overall
• Get a 27% ROI on cost-savings alone
• Save 54% annually compared to internal HR salaries and benefits
• 98% of clients would recommend a PEO to a peer

Summary and Conclusion

Being overworked and overburdened with HR and compliance tasks can be suffocating. Meeting regulatory standards is not the reason most restaurant operators entered the business. Still, payroll for restaurants is a critical responsibility, and organizations can benefit from contracting with seasoned experts to do the job. Increase profitability, lower costs, and save yourself the unending headache of HR and payroll with a PEO.

Watch an on-demand recording of our webinar, “Recipe for Success: A Practical Approach to Restaurant Payroll” to learn more strategies to save time while growing your business or contact us for more information about Fourth’s HR and payroll services.