As restaurant operators struggle to find enough staff to maintain their operations, many owners are considering improving their benefits package as an incentive for employees. Benefits expansion is a challenging and always tricky strategy for restaurant operators. An organization needs to be certain that the perks provided are valuable to the employee group through surveys and analysis. In the past, benefit packages have included gym memberships, pet insurance, dependent coverage, parking stipends, 401k plans, etc. With a new employee model of younger employees who do not necessarily share the same value perspective, companies must make sure these benefits resonate with their employees given the changing environment.
One old benefit gaining traction again is providing employee meals to staff members. For some restaurants, Back of the House employees (such as line cooks, dishwashers, etc.) already receive employee meals, but there is a shift to include all employees. Depending on the establishment’s hours of operation, this can happen just once a day or multiple times a day. We examine the numerous considerations when crafting your employee meal program.
From an Accounting Perspective
Understanding the amount of money spent to prepare the employee meal each shift is the starting point for calculating the cost. Payroll is not usually included in the calculation, but there could be a case where it should be, depending on how many staff members are involved in the production of the meal. The fastest and simplest way to determine the accurate raw cost of the meal is to complete a typical menu costing study. Cost estimates for using leftovers from regular meal service should be accounted for in the cost projection. Once a cost has been established, you should reduce it to a cost per employee.
When financials are being prepared, the cost of providing meals for employees should be deducted from the COGS category (usually food cost). The expense of the employee meal should be recorded as an expense under the Other Payroll category as “employee meal expense.”
From a Tax Perspective
By including the employee meals in W-2’s, the employer is allowed to take a deduction for the cost. On the other hand, the employee is taxed on the cost of the meal provided.
In general, benefits provided to employees on a regular basis do not meet the de minimis requirement. However, if you meet the criteria for the “de minimus” meals provision in the IRS code (Section 132), there is an exception and the meal will not be taxable to the employee.
The “de minimus” meals provision criteria:
- The meals are provided on the premises during working hours, and
- For the convenience of the employer – this is satisfied if you provide meals to the staff for a substantial business reason other than providing them for additional compensation. In the case of a restaurant operation, the argument to satisfy this is that a half-hour break does not allow for employees to leave the premises to get a meal.
- Under Section 119 of the Internal Revenue Code, there are other expenses that can be included as de minimis fringe benefits to employees.
- o Personal use of an employer-provided cell phone
- o Holiday gifts, other than cash
- o Group life insurance payable on the death of an employee’s spouse or dependent if the face value does not exceed $2,000
- o Occasional parties or picnics
- o Occasional tickets for sports or music events
If more than half of your employees take part in the provided meal program and meet the above requirements, you can claim the de minimus exception. You can take the deduction for meals provided if the amount is so low that accounting for it would be an unreasonable task. For most operators, this is the case, but for operators with more than one hundred employees, it no longer meets this criterion.
From a Payroll and Benefits Perspective
Remember you must pass the test to claim the benefits listed under the de minimis provision, which includes at least a certain percentage of the total employee group participating in the meal program.
Anything an employer gives their employees for free is considered a benefit, meaning it is a taxable benefit. For employees taking part in the employee meal program, adding the unit cost determined above in a payroll code allows the meal to be recognized and taxed accordingly without requiring the employee to pay for the meal.
If you are providing employee meals as a benefit to the employee group, then you must treat it as a benefit in the payroll process.
You should communicate to your staff if a lunch for employees is being provided as a courtesy (a substantial business reason) or as an additional benefit of their employment. Include language in your employee manual that states how you are classifying the employee meal program.
Contact us with any questions regarding the Restaurant/Foodservice Industry.
About the Author
Jean Hagan, Principal
Restaurant, Hospitality
Jean has owned, operated, and consulted in the restaurant industry for more than 30 years. During that time, she worked with a well-known national chain; owned a food and beverage company that operated multiple restaurants, bars, and event spaces in the Squaw Valley area; and became the president, CEO, CFO, and shareholder of one of the highest-grossing restaurants in California. Today, Jean is Principal and leads the Restaurant Operations Consulting practice at KROST. » Full Bio