For many restaurant groups, the 401(k) plan only gets attention when something breaks in payroll or an audit finding surfaces. From our vantage point as auditors and tax advisors, a brief annual review can significantly reduce compliance risk and unexpected costs.
401(k) Basics To Revisit Annually
Restaurant workforces are dynamic: high turnover, fluctuating hours, and a mix of tipped and non‑tipped employees. That makes precise execution of your 401(k) provisions critical.
Key items we recommend revisiting each year:
Eligibility & Entry Dates
- Confirm age and service requirements in the plan document match what payroll and HR are applying in practice.
- Verify that variable‑hour, part‑time, and seasonal employees are being tracked consistently and allowed to enter the plan on time.
Contribution Limits & Employer Match
- Ensure employee deferrals are monitored against the annual IRS limits (including catch‑up for age‑50+ participants).
- Reconcile employer match calculations to the plan formula and definition of compensation, and confirm any required “true‑up” is performed.
Operational errors in these areas frequently result in corrective contributions, plus lost‑earnings calculations and additional administrative effort.
Pay Code Design: Tips, Overtime, & Non‑Taxable Codes
Restaurant payroll structures create a unique risk point: pay code design. As new earnings codes are added over time, they are not always mapped correctly to your plan’s definition of compensation.
Recommendations
- Obtaining a current listing of all pay codes, including:
- Base wages, overtime, shift differentials, bonuses.
- Any new codes set up during the year.
- Comparing this list to the plan’s definition of compensation (for example, W‑2 wages, 414(s) safe harbor, or another specified definition).
- Verifying that every code that should be included for 401(k) purposes is flagged as eligible in your payroll system.
As a result of the One Big Beautiful Bill Act (OBBBA), special attention should be given to new non‑taxable tip codes and overtime‑related codes created for particular locations, roles, or individuals. If these earning types are inadvertently excluded within the payroll system (or, conversely, inadvertently included), your employee elective deferrals and employer matching contributions may be understated for affected employees, which typically triggers corrective contributions and potentially additional disclosures.
Timely Remittance Of 401(k) Deferrals
Timely remittance remains a top enforcement focus and a frequent audit finding for restaurant plans. Employee deferrals must be deposited into the plan as soon as they can be reasonably separated from company funds, typically within a few business days, not “by the 15th of the following month.”
Key Practices
- Set a standard funding timeline (for example, 1–3 business days after payroll) and monitor it. Once this standard timeline is established, it becomes the expectation going forward.
- Perform a timely reconciliation to ensure proper funds were submitted. Document who reviews each payroll’s deposit date and how exceptions are handled.
- Investigate and correct any late deposits promptly, including lost‑earnings calculations when required.
2026 401(k) Changes To Watch
Beginning in 2026, higher‑earning employees making catch‑up contributions will generally be required to make those catch‑ups on a Roth (after‑tax) basis rather than pre‑tax. This change will require coordination between payroll and the recordkeeper.
Action items for 2026
- Identify employees likely subject to the Roth catch‑up rule.
- Confirm payroll can distinguish regular deferrals from Roth catch‑up amounts.
- Update employee communications so affected participants understand how their catch‑up contributions will be treated starting in 2026.
401(k) Deadlines To Keep On Your Calendar
In addition to day‑to‑day administration, a few key 401(k) deadlines can have a meaningful impact on cash flow and compliance.
- March 15 – Deadline to process corrective distributions (refunds) to highly compensated employees (HCEs) for a failed 2025 ADP/ACP test to avoid the 10% excise tax on excess amounts. If refunds are made after this date but before Dec. 31, the plan can still be corrected, but the employer generally owes the excise tax and must file Form 5330.
- April 15 – Deadline to return 2025 excess salary deferrals (402(g) violations) to participants who contributed over the annual 401(k) deferral limit across all plans. Missing this date can cause double taxation on the excess.
- Employer matching and profit‑sharing contributions must generally be funded no later than the employer’s tax return due date (including extensions) in order to be deductible for that tax year.
A modest amount of upfront discipline, especially around pay codes and timely remittance, goes a long way toward keeping your 401(k) plan compliant, protecting your employees’ benefits, and minimizing audit and correction costs.
Reach out to your GBQ team with any questions.
By Kari Maue, CPA, Partner, Assurance & Advisory
Are you looking for additional insights? Check out these resources:
Finding A 401(k) That’s Right For Your Business
Restaurants: Common 401(k) Administrative Errors To Avoid
