To Hire or not?

To HIRE or not?
by Robert Wagner, CPA

On March 18, 2010 the Hiring Incentives to Restore Employment (HIRE) Act became law. The act has some really juicy tax benefits for employers that hire folks who have been unemployed for a while.

Payroll Tax Exemption

For an employer that hires a “qualified” employee the employer gets an exemption from paying social security tax on the new employee’s wages. The social security tax is calculated at 6.2% of wages paid. So for each $1,000 in wages paid to a qualified employee, the employer saves $62.

In order to take advantage of this tax break, make sure your payroll company knows you have hired a qualified employee. To do that, your new employee should complete new IRS Form W-11; available at the IRS Web site – http://www.irs.gov/pub/irs-pdf/fw11.pdf. Send the completed Form W-11 to your payroll company and then double-check your payroll reports to be sure that you are getting the HIRE tax exemption.

New Hire Tax Credit

In addition, the employer can claim a generous income tax credit on their 2011 income tax returns for each HIRE employee retained more than a year. The credit can be as much as $1,000 per retained HIRE employee.

Special Considerations for Restaurants

Restaurant operators should certainly consider taking advantage of the HIRE act for all new kitchen and front-of-the-house employees. It gets a little tricky when taking the HIRE tax exemption for new servers. Normally payroll taxes on server wages qualify for the FICA tip credit. Taking the HIRE tax exemption will mean that the FICA tip credit at the end of 2010 will be lower than normal. So while the HIRE tax exemption is a good thing even for servers, the restaurant operator may end up owing income taxes for 2010 because his FICA tip credit is lower than was expected. There is a similar issue with employees that qualify for the Work Opportunity Tax Credit (WOTC).

In addition, the HIRE tax credit available in 2011 may be limited on the restaurateur’s income tax return. That’s because the credit is subject to the Alternative Minimum Tax. If the operator cannot use the HIRE tax credit, at least the credit can be carried forward to another tax year.

Qualified Employee

The HIRE act tax reduction benefit is available only for a qualified employee – that is, an employee that began employment after February 3, 2010 and before January 1, 2011, who has been unemployed (or underemployed) during the 60-day period ending on the date he/she is employed. The qualified employee must certify that they have not been employed for more than 40 hours during the 60-day period ending on the date they start employment. Employees use Form W-11 to certify their unemployed status. Supply the Form 11-W to your payroll company. It does not need to be sent to the IRS. Note that the HIRE benefit is NOT available for an employee that is hired to replace an existing employee UNLESS the existing worker terminated voluntarily or for cause. Family members of the employer do not qualify for HIRE.

Bottom Line

The HIRE is a terrific tax benefit for restaurant operators. There is very little downside to taking HIRE to reduce payroll taxes for kitchen and management staff. In this economy, operators can use all the help they can get.

For restaurants with servers, care should be exercised in taking HIRE for servers since the reduction in payroll taxes will certainly reduce the amount of FICA tip credits available for 2010 and 2011.

For FAQs see http://www.irs.gov/businesses/small/article/0,,id=220745,00.html

Perspective Helps!

Getting away – really away – from the workaday world is a great way to get perspective on one’s business.

Recently I was fortunate to spend two weeks in Australia. Take it from me… if you get the chance to go to Australia, take it. Australians are probably the nicest people you will ever meet. They are patient, approachable, engaging, and fun loving. The only minor issues are 1) Australians talk funny 2) getting there takes forever and 3) Aussies drive on the wrong side of the road. Avoid driving “down under” unless you want an extra dose of excitement in your visit.

Talking with restaurateurs and vintners on the other side of the world gives another perspective to the issues and challenges of the Atlanta restaurant industry. The restaurant industry there, as here, is vibrant, dynamic and challenging. Here are a few principles that unite restaurant operators from these two countries:

· Sales cover a lot of sins – Driving revenues is important in Australia as it is here. There is just no replacement for have robust and consistent revenues. Operators can make mistakes but can recover when sales are strong.
· Local and fresh ingredients are king – It is remarkable how incredibly similar to the US is the focus in Australia on fresh ingredients used “in season” and from local growers.
· Prime cost rules – No matter where your restaurant, prime cost is a critical measure of success. Restaurants that get prime cost right are likely to be profitable and long-lived.
· Talent out the ears – Increasingly well-trained, conscientious cooks can be found in the US in the most unlikely places. In Australia it is not at all unusual to run into a classically-trained chef working away in her own shop in a small “outback” town
· Diversity "It's what's for dinner" – Not long ago Australian restaurants were mostly known for fish and chips. Not unlike our own Southern fried chicken and BBQ. Thanks to more lenient immigration policies in the US and Australia new international flavors, cooking techniques, spices and dishes are flourishing.

To be sure there are major differences between operating a US restaurant and one in Australia.
· Volume is less there – Australia is a country the size of the US but with only the population of New York State. Outside of the 3 or 4 big cities, there just isn’t the population or the sales volume found in the US. And yet professionals still pursue their passion for food and wine. It makes for a slower pace of life but no one appears to mind.
· Labor is higher but tipping is less – In the US servers are typically paid $2.13/hr. So they live on what they make in tips. This has a salutary effect of encouraging servers to see that tables turn efficiently but quickly. The owner has the same objective. In Australia restaurants are required to pay servers a higher wage. Naturally this results in higher menu pricing. But tipping does not carry the same importance there. Servers make higher wages and therefore are less incented to see tables turn quickly.

Visiting other restaurant operators reminds us that some universal principles apply to our industry. It may even raise the curtain on future trends and developments we are likely to experience in our Atlanta restaurant market.