Blog Post by: Jana McGrath, CPA, Senior Client Advisor for Restaurants

With most of my clients being in the restaurant industry, the top concern I have heard from them recently is the challenge of finding quality employees.

The Wall Street Journal wrote recently on this struggle and accurately assesses the current situation for restaurant owners.

To put it simply: Restaurant owners need workers, and are not having success finding them.

How to Attract Workers: Incentivize?

So how do these owners get workers to join the workforce again? Incentives right!? Unfortunately, most of those incentives are taxable to the employee and with unemployment being tax-free up to $10,200, the incentives offered still are not as appealing.

In order for a fringe benefit (an extra benefit supplementing an employee’s salary) to be tax-free “it must be a property or service that is small in value, infrequent, and administratively impracticable.”(Source: IRS)

This begs the question: How do you define “small in value?” I think it can be fairly assumed that each one of us has a different idea of “small”. No matter what your definition of small is, though, anything that can be seen as cash or a cash equivalent is generally intended as a wage and must be taxed.

So, the $500 sign-on bonus that is being offered at many places is taxable. One way around this that I see, is to offer that sign-on bonus, but make sure to account for tax, so that the employee gets the full $500 on pay day.

Though this will cost more to the employer, it becomes more rewarding to the employee. It is also good to add a stipulation that the employee must work for X amount of time before the bonus is received, so they don’t just take the bonus and quit.

Looking Beyond the Sign-on Bonus

Along with the sign-on bonus, it would be good to offer additional quarterly bonuses for the employees based on how their performance is and how well the company is doing based on net operating income. Referrals could also piggy-back off this structure.

For example, once a referred employee reaches X # of hours, then you earn a pay out of X% of their earnings. This way the employees are motivated to continue to work for additional income and it also helps to improve the restaurant. To help pay for the additional costs above, you could impose a [temporary] mandatory service charge on all orders with a clear explanation of its purpose. I think people will understand since most restaurants are dealing with the same issue. We all know everyone has been paying that extra delivery fee, no problem.

Helping Workers Get to Work

Another major issue that I have heard from several clients is that travel when returning to work is too expensive. For the employees that take public transit to work, another option is to set up a Commuter Benefits Plan that allows employees to have certain commuter expenses taken out of their paycheck on a pretax basis, thus lowering their overall taxes paid during the year.

It is definitely a challenging time for restaurant owners, but hopefully these incentives will entice people to come back and with the pandemic slowing down, feel safer to do so. It will be interesting to see when the unemployment benefits run out, if that helps to increase the work force as well, or if the change in lifestyle experienced from the pandemic continues to keep people at home.

At RY CPAs, we specialize in helping restaurants. If you would like to discuss your current situation and
see whether we can help, you can set up a meeting on this page.