Tip Pay
Requirements
How Tips Affect Payroll
© SurePayroll, Inc. 2014
What are the tip pay
requirements?
1st
For employees that receive tips, the Federal Labor
Standards Act (FLSA) allows employers to pay $2.13
per hour when tipped employees receive at least $30
in tips during a month.
U.S. Department of Labor
2nd
• The hourly regular rate of pay must add up to be at
least the minimum wage of $7.25 per hour for the
workweek.
• Any shortage is paid by the employer to make up
the difference.
3rd
• There is an allowable “tip credit” that the employer
can take under provisions of the FLSA.
• With a pay rate of $2.13 per hour when the
minimum wage is $7.25, the allowable tip credit is
$5.12 per hour ($7.25 - $2.13).
How does that tip credit work?
Let’s look at an example.
If your state’s minimum wage is $8.15 and it gives a
tip credit of 33%, here is the payroll calculation:
Example
The calculation to determine the net minimum wage to pay:
State allowed tip credit of 33%: $8.15 x 33% = $2.69
Minimum wage (net) for the state: $8.15 - $2.69 = $5.46
In this scenario, you must pay $5.46 per hour to your tipped employee.
This is more than the FLSA required amount of $2.13.
Why does this matter?
It significantly reduces your employment costs if
your employees receive at least $30 in tips during
the month.
In the example, you would pay $5.46 per hour
instead of $8.15.
*NOTE! Some states prohibit the use of tip credits and
others may have higher or lower rates. Employers
must choose the law that compensates employees
the most.
4 Guidelines Employers Must Follow When Using the Tip Credit
1st
The tipped credit amount needs to be equal to or less
than the tipped amount the employee actually
receives.
2nd
Employers must tell the employee about the tipped
credit before taking advantage of it.
3rd
• The tips that an employee receives need to be
kept by the employee.
• Note: There must be “tip pooling” in situations
where it’s common, such as restaurant payroll
between waiters, hostesses, etc.
4th
When tips are given using a credit card, the
compensation must be paid the next payday.
What Employers Need to Know
• Check with your state to ensure you can use a tip credit.
• Your employees must be paid at least the minimum wage for the workweek (defined as 40 hours by the FLSA).
• If an employee’s wages total less than the minimum, you need to compensate the employee for the difference.
Paying Tipped Employees
can be Hard.
SurePayroll Makes it Easy.
Easy. Online. SurePayroll.
