Learn how to manage your employees' tip credits with payroll.
If you take advantage of the tip credit, you’ll need to make sure you’re meeting minimum wage requirements each time you run payroll.
|Note: If you’re not sure talk to your accountant or see these guidelines for the state you’re in. Some states follow the Federal wage and hour minimums and other states have their own legislated minimum wage which is higher than the federal rule.|
Step 1: Double check the hourly rate each pay period
If you are taking advantage of the tip credit hourly wage, you’ll calculate their hourly rate for each payroll period. Use the formula below to determine if they have earned enough in tip income to bring their hourly wage up to the mandated minimum wage for your state, county or city.
Here’s how you determine employees hourly rate:
- Multiply their Tip credit wage rate by hours worked in the pay period
- Take the amount they earned in tips and add it to the amount from step 1
- Divide total in step 2 by hours worked in the pay period
|(( wage rate X hours work in the pay period) + Tips) \ hours worked in pay period = hourly rate|
If the employee hourly rate in this pay period does not meet the legislated minimum wage, you need to make up the difference.
Step 2: Update the hourly rate in payroll each pay period
If your employee hourly rates with tips include don’t meet the mandated state minimum wage, you’ll need to modify their hourly rate.
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