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Managing payroll

Outsourcing payroll tasks can save time and money, but there’s a trade-off.
passing money

On payday, Back Yard Burgers employee Anthony Johnson would drive the 45 minutes to work, pick up his paycheck to deposit it at his bank and head back home, only to return a few hours later for the start of his evening shift at the restaurant. When the Nashville, Tenn.-based QSR started offering payroll debit cards to employees, Johnson immediately signed up. Now his pay automatically is loaded onto the card every payday morning.

“I do enjoy it,” says the 24-year-old manager. “It helps me with paying my bills on time. It’s better for managing your money, in my opinion.”

Some 95 percent of Back Yard Burgers’ 400 employees opted for payroll debit cards or direct deposit of their paychecks when the company switched to a small, regional payroll outsourcing firm last year that offered automated payroll at a lower cost, says CEO David McDougall of the 63-unit chain. The change saved Back Yard some $20,000 on annual mailing and paper costs. “I don’t see a line item on the P&L that is not going up, whether food, rent, taxes or utilities,” McDougall says. “We have to look to be more efficient and leverage technology.”

For some operators, the advantages of outsourcing all or a portion of payroll—automated payments, reduced in-house labor and efficiencies in paying taxes—they say, can outweigh the cons, which may include technical glitches and waiting on a vendor to fix a problem. “Outsourcing lets us do what we do best—run restaurants—and [the vendor] can specialize in what they do best, processing payroll,” says Marshall Alexander, controller for Slim Chickens, a 17-unit fast casual based in Fayetteville, Ark.

Although the chain has its own payroll department, last year Slim Chickens hired a payroll-processing company to handle some functions, including issuing payroll cards and direct deposit. “We log on, use their system,” Alexander said. “They do the behind-the-scenes calculating and logistics. What we pay for the processing is pretty minimal, and we have access to their technology.”

Third-party services with offices around the country can help larger operations stay on top of federal, state and local taxes, says Michelle Coombs, senior payroll manager for Carlsbad, Calif.-based Rubio’s. The chain has nearly 4,000 employees and almost 200 restaurants in five states. “The higher your payroll, the more timely you have to be submitting taxes on behalf of the company. If you don’t stay on top of that, there are penalties and interest which is fairly costly,” she says.

Restaurants do give up some control or immediate access to information when using an outside source, however, says Patrick Yearout, director of recruiting and training for Seattle-based Ivar’s Restaurants. The seafood-restaurant operator, with 34 full-service and quick-service concepts plus 20 concession stands at sports stadiums, uses an internet-based payroll and human-resources management software. The system saves costs and time, Yearout says, and comes with a portal for employees to access their own records, including taxes paid, amount of accrued sick leave or vacation time and W-2 forms to download. The disadvantage is waiting for the vendor to correct problems that come up. “We’re not able to get in and customize it necessarily the way we want to,” he says. 

Another challenge with outsourcing is making sure the technology is compatible with a restaurant’s system, says Alexander. “You have to make sure data is getting from one place to another,” he says. “It can be a headache in the beginning, but once you have the integration and data flow working properly, it’s pretty nice.” 

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