Payroll CS can perform calculations for three types of tipped wages:
- Allocated Tips Reported Tips Tips Deemed to be Wages
To have the application perform any of the tip pay calculations, select the appropriate pay item in the Setup > Employees window or the Setup > Employee Templates dialog.
Each type of tip pay calculation requires that a Tipped Wages pay item be set up in the Employees window. To initiate the proper calculations for any tipped employee, you need to include at least one Tipped Wages pay item when setting up information in the Employees window:
Note: Payroll CS is shipped with a Tipped Wages employee template that contains Tipped Wages, Reported Tips, Tips Deemed Wages, and Other Wages pay items.
If your firm uses Payroll CS to process payroll for the client, do not mark the CBS Client checkbox on the General Information tab of the File > Client Properties dialog. Marking that checkbox would prevent you from being able to set up tipped wages and other calculating payroll items unavailable within CBS.
Automatic minimum wage verification
Because there are issues that may need to be addressed if an employee is paid less than minimum wage, Payroll CS is designed to alert you if this situation occurs when you enter and then save a payroll check for an employee with tipped wages.
Setup: If your client uses a minimum wage different from the federal minimum wage, make sure that minimum wage is entered in the Client minimum wage field in the Calculating Payroll tab of the File > Client Properties dialog.
Tip credit reduction
Employers of tipped employees can take a tip credit, which allows them to pay the employees less than the minimum wage under the assumption that the employees will earn at least the difference in tips. If the employees do not earn enough to bring them up to minimum wage, the tip credit needs to be reduced (in other words, the employee's wage needs to be increased).
Payroll CS can automatically calculate the tip credit reduction for a payroll check that includes allocated tips, reported tips, indirect tips, and/or tips deemed to be wages. When you enter payroll check information in the Payroll Check Entry window for an employee, the application calculates the reduction as follows:
If the effective wage rate is greater than the minimum wage, the application determines the amount of tips that are needed to bring the employee's pay up to the minimum wage requirement. The
remaining amount of total tips can then be allocated to any subsequent tipped wage rates that are below minimum wage.
If the effective wage rate is less than the minimum wage, the application performs the following calculation for tip credit reduction:
Note that the minimum wage rate is derived from:
- Setup > System Configuration > Payroll Tax Information > Federal Tax Information dialog > Federal minimum wage field or File > Client Properties > Calculating Payroll tab > Client minimum wage field (If the client uses a minimum wage different from the federal minimum wage, the client minimum wage will override the federal minimum wage.)
The amount of the tip credit adjustment is added to the wage rate for the gross pay item assigned to the Tipped Wages pay item, and the application displays a prompt showing the pay item and amount of the wage increase. If the overtime and double-time calculations are affected, they will be recalculated.
Setup: The tip credit reduction requires that a Tipped Wages pay item and a Reported Tips pay item be set up for the employee.
Check entry: Enter the number of hours for tipped wages and the amount of reported tips (or, the application can calculate the tip credit reduction as a percentage of sales or a dollar per hour amount).
Calculation: If the application calculation determines that the Reported Tips amount is insufficient to bring the Tipped Wages item up to minimum wage, it calculates the rate increase needed and queries whether it should make the change.
To determine the minimum wage, the application first checks to see if the employee is marked as a user of the Alternate minimum wage (Setup > Employees > Personal tab), then it checks to see if a Client minimum wage rate has been entered in the Calculating Payroll tab of the File > Client Properties dialog. If so, the latter wage rate will be used. If not, the Federal minimum wage rate entered in the Setup > System Configuration > Payroll Tax Information > Federal Tax Information dialog will be used.
Note: If there are multiple Tipped Wage pay items, the application calculation will go through them one by one to determine whether the reported tips cover them all. For example, if there were $500.00 in reported tips and it took $375.00 to cover the first tipped wage rate, there would be $125.00 left over to be used toward the second tipped wage rate.
Overtime and double-time wage rates