The Pros and Cons of Integrating Your POS and Payroll
September 20th, 2024 | 5 min. read
These days, it seems like everything is getting "smart"—from your phone to your home. Technology now seamlessly connects everything, making life more convenient. The same can be true for your restaurant’s operations if you choose to integrate your Point of Sale (POS) system with your payroll software.
Think about how smart tech simplifies your home: video doorbells, smart thermostats, and automatic vacuum cleaners. Now, apply that level of convenience to your business. Integrating your POS and payroll systems can work similarly, streamlining processes and reducing errors. But just like with smart home tech, it’s not always necessary or the best fit for every restaurant. Let’s dive into whether this integration is right for you.
The Importance of Your POS
Your Point of Sale (POS) system plays a vital role in managing your restaurant’s financial and operational data. It tracks everything—employees' hours, customer orders sent to the kitchen, payments, credit card fees, and sales across food, beverages, alcohol, taxes, and tips. Essentially, your POS system allows managers and owners to monitor labor and sales data in real-time, giving them a clear picture of how the business is performing.
If you’re using your POS to track employees' hours, you’ll need to ensure those hours are correctly sent to your payroll company at the end of each pay period.
Some POS systems offer payroll services, but many restaurant owners prefer to use a separate provider for payroll and tax services. This raises a few key questions:
- Will you have your general managers manually enter hours into the payroll system?
- Will you rely on import/export files to transfer data?
- Or, will you integrate your POS and payroll systems to streamline the process?
Cloud-Based POS Systems: The Key to Integration
No matter what features you’re currently using in your POS, you’ll need a cloud-based POS system to integrate it with your payroll software. Originally, all POS systems were “on-premise,” meaning they were installed on and run from your restaurant’s local hard drive. Today, with cloud-based systems, your POS is connected to the internet and hosted on remote servers, making integration with payroll software possible and much easier.
Fortunately, most of today’s POS systems can be converted to cloud-based. Here are some of the top cloud-based POS systems available (in no particular order):
If you’ve already outsourced your payroll or are considering doing so, integrating your POS with your payroll software could be an excellent way to simplify your workflow.
Benefits of Integrating Payroll with Your POS
In the restaurant and hospitality industry, managing payroll efficiently and accurately is crucial for keeping your staff happy. After all, many employees are there for one reason—the paycheck.
With such a diverse workforce, including part-time, full-time, seasonal staff, hourly, salaried workers, tips, commissions, and bonuses, payroll management can get complicated fast. That’s where integrating your POS system with your payroll software comes in. It simplifies the entire process. Here are some key benefits of making the switch:
1. Reduces Manual Data Entry
One of the biggest advantages of integrating your POS with your payroll software is how much it reduces the need to manually enter data across multiple systems.
This not only saves time but also helps minimize the risk of costly payroll errors.
Integrated systems automatically capture employee hours worked, along with sales data per shift, day, or week. You can review this data for accuracy (like checking whether someone forgot to clock out) and then export the timecard directly into the payroll software.
2. Electronic Onboarding
Another huge time saver is Electronic Onboarding.
When you hire a new employee, all of their required documents—W-4, I-9, Direct Deposit Information, Tax Information, handbooks, WOTC form… the list goes on—can be completed digitally. No more paper stacks!
Once the employee completes these, their information is automatically uploaded into the payroll software and used to accurately get them paid and taxed at the end of the year.
3. Tip Management and Tracking
Tips are one of the most critical components of compensation in the restaurant industry.
Integrating your payroll software with your POS also simplifies tip management and allocation. In addition, it will allow you to track the 80/20 rule for Tip Credits that are available for the business owner as a tax deduction on your Year End Tax Return.
With tips automatically captured and allocated through the POS system, the payroll software takes care of the rest, making sure employees accurately receive their fair share of tips.
4. Compliance with Labor Laws
No one wants to have a run-in with the Department of Labor (DOL).
Integrating your systems helps you stay up to date with current labor laws and regulations, which are automatically updated in your payroll software.
Many payroll companies also offer HR services so it can be easy to consult HR experts about the local and federal regulations you need to manage.
Additionally, payroll softwares can provide analytical tools and reports that can help the business monitor their Key Performance Indicators (KPIs) for improvement and take action where changes may be needed.
Whether you are pursuing a direct integration between your point of sale and your payroll company or are working to format an easy import/export file to upload on payday, there are several ways to get hours and tips into your payroll software. Be sure to explore those different options with both of your partners and come up with a solution that works for you.
Should You Integrate Your POS And Payroll?
There's an old saying: just because you can, doesn’t mean you should.
While we at Patrick Accounting love technology and encourage running a lean, efficient back office, we actually recommend NOT integrating your POS with your payroll system. Allow me to explain why!
Why You Might NOT Want To Integrate Your Pos And Payroll
1. Increased Risk of Payroll Errors
Surprisingly, fully integrating your POS and payroll can increase payroll mistakes. Automated systems can miss key errors, like when an employee forgets to clock out.
We strongly advise against manually entering payroll details because a simple mistake—like typing $10,000 instead of $1,000—can easily happen. The last thing you want as a restaurant owner is to be forced into recovering thousands of dollars from an employee’s account—or worse, not being able to recover the money at all.
With less manual oversight, these mistakes are more likely to slip through unnoticed, causing costly financial issues for your business.
2. Over-reliance on Automation
Automation should support, not replace, human checks on payroll accuracy.
Relying too much on automation can create a false sense of security. Without proper checks, you could miss overtime wages, shift rate changes, or incorrect tip allocations creating labor law issues. While automation reduces manual work, it can’t replace the human review needed to catch these critical errors.
Skipping this step can lead to payroll mistakes that hurt both your bottom line and employee trust.
Our Recommendation: Custom Time Card Imports
Instead of full integration, we recommend working with your payroll company to create a custom time card import file or an FTP file.
This allows you to export time data from your POS, manually review it for errors, and then upload it into your payroll system. This two-step process adds a layer of protection against errors while still saving time on manual entry.
A good payroll company can set up alerts and rules to catch issues during the import process, such as overtime discrepancies or unapproved shift changes.
Yes, it’s a bit more work upfront, but it could save you thousands of dollars in the long run by avoiding costly payroll mistakes. Over time, your payroll company can help tweak this report so it gets more efficient for you as you grow.
Is Integrating Your POS and Payroll Worth It?
At Whirks, our mantra is "One Step Better." While integrating your POS and payroll might feel like a leap at first, it could be that one step that makes your back-office operations more efficient. Done correctly, it can simplify payroll, reduce errors, and make sure your staff gets paid accurately every time.
However, make sure you don’t rely too heavily on automation. Whether you choose full integration or custom imports, it’s important to review your payroll data carefully. In an industry where margins are tight, every dollar counts, and the right system could make all the difference in staying profitable.
Whirks happily supports over 100 restaurants in their day-to-day operations and we love to help our clients thrive. If you have questions about integrating your POS and payroll, we’re here to help you find the best solution for your business.
Worried about payroll integration challenges? Discover the top concerns when switching providers and how to sidestep them. Read the Top 5 Fears of Switching Outsourced Payroll Providers to make sure you’re ready.
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