Square Payroll is Square's payroll service for US businesses. It pays W-2 employees and 1099 contractors, and according to Square it calculates, withholds and files federal and state payroll taxes on your behalf and prepares year end W-2 and 1099-NEC forms. For a restaurant already using Square POS, the biggest benefit is that timecards and tips from the POS can be imported straight into each payroll run, so you are not retyping hours and tips from reports.
This guide walks through setting up Square Payroll for a restaurant, running payroll each period and the restaurant specific issues to watch.
What Square Payroll handles
Based on Square's US payroll pages, Square Payroll includes:
- Payroll tax filing: federal and state payroll tax calculation, withholding and filing.
- Year end forms: W-2s for employees and 1099-NECs for contractors.
- Employees and contractors: pay both in the same account (Square also offers a contractor-only plan).
- Timecard import: hours from Square POS or the Square Team app.
- Tip import: tips recorded in Square brought into the payroll run.
- Direct deposit, with an early pay option for eligible team members who use Cash App, in qualifying states.
- Benefits add-ons such as health insurance and 401(k) through Square's partners.
Square Payroll pricing and features change over time, so confirm the current details on Square's site before you sign up.
Step 1: Get your information ready
Before you start, collect:
- Your business's federal Employer Identification Number (EIN) and state tax account numbers.
- Your business bank account for funding payroll.
- Each employee's legal name, address, pay rate and tax withholding forms (such as Form W-4), plus any state forms.
- Bank details for direct deposit.
- If you are switching mid-year, your prior payroll history for the year, so year end forms are correct.
Your accountant can help confirm which state and local registrations you need.
Step 2: Connect your team and timecards
Make sure every team member is set up in Square with their role and wage, and that they clock in and out on the POS. Clean timecards are the foundation of clean payroll. Our guide to tracking employee hours with Square timecards covers passcodes, breaks and overtime settings.
Step 3: Set up tip importing
Restaurants need tips to flow into payroll correctly. In Square, you turn on tip importing in Square Payroll settings, and you set how tips are distributed (for example, to the person who took the order, or pooled by hours worked) in your team or Shifts settings in Square Dashboard. Square's support center notes that payroll tip imports follow the tip distribution method you choose there, so set that first.
If you edit timecards after importing, Square recalculates tips, so re-import to pick up the latest figures. For the tax and policy side of tips, read what you need to know about taxes and tips.
Step 4: Run payroll each period
- Review timecards for the pay period. Close forgotten clock outs and check breaks and overtime.
- Start the payroll run and import time and wages from Square. This brings in hours, tips and any commissions.
- Check each line. Look for unusual hours, missing tips or new hires without complete details.
- Add anything extra, such as bonuses or reimbursements.
- Submit before Square's deadline for your pay date.
Square also offers automatic payroll, which runs on the due date and imports timecards plus tips and commissions where you have those turned on. It saves time once your timecards are reliable, but keep reviewing them before each run.
Example: a 12 person cafe
A cafe with ten hourly baristas and two salaried managers pays every two weeks. Baristas clock in on the POS, tips are pooled by hours worked, and tip importing is turned on in Square Payroll. On payroll day, the owner spends 15 minutes reviewing timecards, imports time and wages, checks that each barista's tips look right compared with the last period, and submits. Square files the payroll taxes, and in January the W-2s are prepared from the same records.
Restaurant payroll issues to watch
- Tipped minimum wage: some states allow a lower cash wage for tipped employees and some do not. Rules differ widely, so confirm with an accountant or your state labor department.
- Overtime: several states have daily overtime, not just weekly. Check that your Square overtime settings match.
- Multiple pay rates: staff who work two roles at different rates need both set up correctly.
- Cash tips: tips paid in cash still need to be reported. Have a consistent way for staff to declare them.
- Worker classification: people who work regular shifts under your direction are usually employees, not contractors. Misclassifying them can lead to penalties.
Common mistakes
- Running payroll from unreviewed timecards. Errors in hours become errors in pay and taxes.
- Mismatched tip settings. If the tip distribution method in Square does not match your actual policy, imported tips will be wrong.
- Skipping professional advice. Payroll tax and labor rules are detailed. A good accountant is worth it, especially in your first year.
For how payroll records fit into year end, see filing taxes for small restaurant owners using Square reports.
Where Orda fits
Orda does not run payroll, but it keeps the sales side of your Square account complete. Orders from your branded Orda app, web ordering and Orda Express kiosks flow into Square POS, and tips added on those orders are recorded in Square with everything else, ready for your tip settings and payroll to pick up.