Restaurant Payroll Journal Entry

The restaurant payroll journal is one of the most popular journal entries within the world of accounting. Want to know how to make a proper restaurant journal entry? Find out in this post!

For restaurants, payroll is a complex transaction with many moving parts, and the journal entry seamlessly captures all this accounting activity. Even though it is extremely common, it can be a bit complex, even for an experienced bookkeeper or business owner.

This post covers all the nuances related to properly accounting for your payroll entry in your preferred accounting software. This post operates under the assumption that you have a full-service payroll provider, which you should because it will save you both time and money. I recommend Gusto as they have one of the most robust and user-friendly platforms that exist.

Why Gusto you ask? Because 94% of Customers Recommend Gusto !!!

Pay attention: This information will be very valuable in your weekly or biweekly processing of payroll.

The payroll journal entry consists of a few main aspects outlined below:

Read Also: Record Daily Restaurant Sales Using Journal Entries

Payroll Journal Entry Components

Gross Wages

This is the portion of your payroll expense paid to your staff and is often broken up by departments, such as FOH management, BOH management, and general management.

I actually recommend this configuration as it helps you better understand where your payroll dollars are going. I cover this configuration in detail in my restaurant chart of accounts post.

Bonus Expense

Ever have a great month and given a bonus to your hard-working staff? Or, do you give an annual or quarterly bonus (think holiday or a performance-related bonus)? You’ll record this information under this additional expense line item.

Payroll Tax Expense

A portion of the taxes paid for payroll are an expense of the company, and a portion are a contribution from your employees. This line item indicates the amount that your restaurant contributes to taxes, including social security, Medicare, and unemployment insurance. Since not all taxes paid to the government are the company’s expenses, this line item tracks the company’s tax expense.

Again this is a confusing concept; the company pays the government both their taxes and employee taxes related to the gross wages. However, the company can only expense the part that is related to its portion of the taxes.

Benefit Contra Account

If your employees contribute to a benefits program, this is where you will account for this. For example, do you provide health insurance? Well, part of that is your expense, and part of it is your employees’ expense. I generally place this on the balance sheet as a liability account, but it should zero out for each period.

Payroll Clearing Account (Net Check Account)

Some restaurant employers still pay via check. I know this is industry standard, but I recommend direct deposit because it is much more efficient, and I hope by now you know that time is money. This account is where those net check amounts are recorded to clear in the future. For example, when John gets his weekly check, you clear part of the journal entry into the account showing the monies are due and then issue a net check for his paycheck.

This technique is a much better approach than merely clear net checks as they come. Why? This approach ensures your accounting records are under the accrual method, where expenses are matched to the revenue they produce. They are letting checks clear as the cash results in expenses for one period scattered over many months as expenses.

Wage Withdrawal

When you use a full-service payroll provider, they often make a few withdrawals for each pay period to help with accounting. One of those main withdrawals is the wage expense that is debited from your bank account. This bank withdrawal usually states “net wages” or similar on the bank transaction detail, and the portion of the journal entry for this should match the withdrawal specifically.

Read Also: What Salary Should You Pay a Restaurant General Manager?

Tax Withdrawal

When you use a full-service provider, it often makes a few withdrawals for each pay period to help with accounting. One of those main withdrawals is for the tax expense. The tax expenses include both the employee and employer tax expense, meaning it is a tax that both the employee and the employer pay. This comes out in one withdrawal and usually denotes “taxes” or “tax payment” in the withdrawal.

Often restaurant owners and accountants think this is the total tax amount they pay; it is not. This tax is both the employer’s tax responsibility and employees; only part of it is the employer’s actual expense!

Tips Payable (Accounting for Tips in Payroll)

As I’ve mentioned before and will mention again, tips are not an expense for your restaurant business; they are simply a pass-through that needs to be recorded as earned wages for your employees. These pass-through entries live on the balance sheet for a short time and then are zeroed out when a counter-transaction is made. Sometimes tips are paid on checks, and sometimes they are paid out in cash nightly; either way, they need to be accounted for.

Tips Payable Pro Tip

Tips payable is one of the most confusing concepts of the restaurant payroll journal. If entered incorrectly, it will cause your payroll journal not to balance. The best way to understand this is to realize that if your employees have already earned tips payable (in most cases), it is not an expense for your restaurant, but is instead taxable income for the employees (and merely a pass-through for your restaurant).

An Example of a Restaurant Payroll Journal Entry

Of course, this is simply an example, and depending on the addition or removal of specific items related to your restaurant, your journal entry may look different.

For example, if you run an events venue, you may have a service charge that you need to account for that you treat differently than tips payable. In fact, you may treat that service charge as an expense (as you counted the earnings as income) because you are in a state where you need to pay sales tax on it.

Restaurant Payroll Journal Entry for Direct Deposit

The following example assumes all employees are on direct deposit.

Account Name	Debit	Credit
6011 – Gross Wages – Management FOH	$5,000
6012 – Gross Wages – FOH Hourly	$2,500
6021 – Gross Wages – BOH Management	$2,500
6022 – Gross Wages – BOH Hourly	$2,500
6065 – Payroll Tax Expense	$3,000
2280 – Tips Payable	$2,500
1010 – Wage Withdrawal Bank Account		$12,500
1010 – Tax Withdrawal Bank Account		$5,500
Total	$18,000	$18,000

Download the restaurant payroll journal entry in excel here.

Not sure about these chart of account items or numbers? I dive into all this in great detail in my restaurant chart of accounts post.

Restaurant Payroll Journal Entry for Direct Deposit and Checks

The following example assumes employees are split between direct deposit and manual checks.

Account Name	Debit	Credit
6011 – Gross Wages – Management FOH	$5,000
6012 – Gross Wages – FOH Hourly	$2,500
6021 – Gross Wages – BOH Management	$5,000
6022 – Gross Wages – BOH Hourly	$2,500
6065 – Payroll Tax Expense	$3,000
2280 – Tips Payable	$2,500
1010 – Wage Withdrawal Bank Account		$8,500
1010 – Tax Withdrawal Bank Account		$6,500
2220 – Net Checks – To Clear Later		$5,500
Total	$20,500	$20,500

Download the restaurant payroll journal entry in excel here.

Not sure about these chart of account items or numbers? I dive into all this in great detail in my restaurant chart of accounts post.

Please note that you can break up departments as you see fit. For example, those with extensive BOH management, FOH management, and administrative staff may want to include all three of those accounts, while small restaurants or cafés may prefer only one line item for management.

I dive into all this in great detail in my restaurant chart of accounts post.

Understanding Restaurant Net Checks

Some employees in the restaurant industry prefer to receive a physical paycheck on a weekly or biweekly basis. This is a reasonable request, and even though I prefer to have everyone on direct deposits, this request should be accommodated. A great employer-employee relationship is one where both parties attempt to ensure the success of the other.

From an accounting perspective, this can be a very confusing concept and result in extremely messy accounting books and records. Net checks, as outlined in the example above, are the net after-tax and deductions that an employee receives for a given payroll cycle.

Net checks are similar to the ACH for direct deposits: This money is owed to the employee. The checks should be entered into the accounting software and dated the date of the payroll journal entry. This ensures, first, that the proper money due to the employees has been allocated to them, and, two, that all employee-related expenses are accrued correctly in the appropriate period.

Dating the Restaurant Payroll Journal Entry

Under accrual-based accounting, the payroll services rendered should be expensed in the period the work was performed, so this expense can be attributed to the sales during that period.

This means the payroll journal entry should be dated the last day of the pay period to which the payment for wages corresponds. In practical terms, if the pay period ends on Friday, August 7, 2020, the journal entry should be dated Friday, August 7, 2020. Though the funds may not be withdrawn until later, dating the journal entry in the period corresponding to the services provided ensures that you have an accurate representation of the profit and loss for the period and are following the accrual accounting methodology.

A The Restaurant CFO Payroll Expert

Now you are a The Restaurant CFO payroll expert. You know the basic and now some of the advanced concepts. Start recording your restaurant payroll entries accurately now, and prepare more accurate restaurant financial statements. This post should have answered most; it not all of your accounting for payroll questions. Still, have more? Leave a comment below with your questions!