Over the past twenty years, I’ve talked with a lot of people in the restaurant business about what I like to call, the "4th quarter scramble." While the 4th quarter of the year is typically the busiest for many restaurants, it’s also the time when year-end payroll administration needs to be sorted out.

I’d like to share a few tips we at PCS/Valiant tell our clients that can make your 4th quarter HR and payroll management a little easier.

The most important thing you should be doing now is verifying your data. Make certain the W-4s you have for your employees have current and accurate information on them. Make sure that names have been entered correctly in your payroll system. If you want to avoid mismatched names and social security numbers, consider utilizing eVerify.

If the Social Security Administration rejects any of the W2 information you submit for employees, it will most likely be due to the spelling of names, transposed social security numbers, hyphenated names, "Jr." after a name, etc. So try to clean up your records before you submit W2s.

If you’re planning on making an operational change (like changing payroll services) now is the time. Don’t wail ’til December-when business really heats up! You want to have the new system up and running on January 1st, and it’ll take a few weeks to make the changeover and work out any kinks.

"Tipped Employees"

When I talk about payroll and compliance issues with my restaurant clients, the subject often turns to handling tips.

According to the Department of Labor, "Tipped employees are those who customarily and regularly receive more than $30 per month in tips. Tips are the property of the employee. The employer is prohibited from using an employee’s tips for any reason other than as a credit against its minimum wage obligation to the employee ("tip credit") or in furtherance of a valid tip pool. Only tips actually received by the employee may be counted in determining whether the employee is a tipped employee and in applying the tip credit."

If you are currently distributing credit card tips to your employees nightly, consider doing so weekly, with payroll, instead. This will eliminate the problem of you employees’ taxes being under-withheld. Another benefit: your cash flow will increase. And, think about this: either way, you can deduct the credit card fee charged by the credit card company from the tips being distributed to your employees. If you decide to tip out your credit card tips nightly, be aware that here at PCS/Valiant we produce pay stubs that track un-withheld taxes. With this information, at the end of the year your employees should know that their tax burden will be higher than what their take-home indicates.

No restaurateur wants to be in the business of policing employees’ tip reports, since it’s the employees’ responsibility to report and pay taxes on their tips. However, there’s good reason for employers to make sure employees understand how important tip reporting is: Underreporting can make both you and your employees vulnerable to an IRS audit. The law says employers owe FICA taxes on all the tips their employees receive, whether they are reported or not.

"Check Fraud"

It’s an unfortunate fact of life: Crime goes up in a bad economy. And the restaurant/hospitality industry is not immune. In fact, a leading accountancy recently reported that, "Business owners in restaurants and hospitality businesses run a higher than average risk of check fraud." This is an aspect of criminal activity that we at PCS/Valiant talk to our restaurant clients about.

The burden is on the restaurant owner/manager to be on the lookout for check fraud. As for my company, we counsel our clients on ways to reduce instances of check fraud and we also build security features into every payroll check we generate, making it virtually impossible to modify our check to create a bogus check.

We also utilize a system called Positive Pay File. It’s a file generated by Valiant software and it includes the check date, check number and check amount. It’s sent to the bank so only that exact amount will be cleared by the bank. Along with the other features of the checks we produce, Positive Pay File provides your best protection against check fraud. And here’s a tip: have multiple people in your back office handle payroll so there are "checks and balances" built into the process, which can help reduce fraud.