How to Calculate Payroll for Tipped Employees

Check stub generators can greatly help you compute for tipped credit, but it’s important for you to stay compliant with local state laws to make sure that your employees are compensated properly.

If your state allows your employees to earn tips, it’s also important to make sure they’re earning their proper mimim wages and they don’t exceed the maximum tip credit. While a pay stub generator can help you out, it’s also a good idea to be familiar with what your state mandates regarding tipped employees.

In most states in the US, many staff are not earning the same minimum wage as non-tipped workers. There is a tip credit which sets the state minimum wage and this is called the minimum cash wage.

In other words, you can make computations by using this formula:

Minimum Cash Wage = Minimum Wage – Maximum Tip credit

That is their minimum wage subtracted by the maximum amount of tips they’re allowed to make.

If you want faster computations, you can check out our check stub generator online by clicking here.

notes and coins - a check stub generator can help you calculate tips more accurately
Click the image above to check out our Texas Paystub Generator, Texas has a maximum tip credit of $5.12/hour.

There are fail-safe mechanisms in place in every state that protect the rights of tip-wage earners.

As you can see, this is created not to abuse low age and to ensure that these employees most of them waiters, waitresses, porters and valets that they can be compensated fairly well and it incentivizes the earning of tips and forces them to perform well. When a tipped employee’s earnings don’t reach the state required wages, then you should be able to pay for that difference as well.

The Fair Labor Standards Act (FLSA) sets something we call the federal minimum wages and these tip credit scores and there are certain states which comply with this law. It’s important to make sure that you are familiar with this depending on what states your business is operating on.

Here are some of the basic tenets:

You should pay your tipped workers the minimum cash wage.

This is important. If you’re confident they’re going to be getting from tips because of their job, then making sure they at least hit the minimum cash wage is paramount to ensure that they will have job satisfaction but also that they will be inspired to reach for more and make sure they earn those tips through hustling and bustling.

In your paystub generator, include the tip credits

You should include the tip credits on your check stubs, this ensures that there is an accurate reflection of payroll and that if you refuse to place it there, you are going to pay your employees their regular minimum wage. It’s that simple, if they don’t make it, then you are going to have to cover that difference.

Tips must be given to employees

You must give tips to the employees not have them remitted to you, but upon your use of your paystub generator, it will be clear whom these belong to. You can share them among employees, but these must be decided and you are going to have to reflect that on your payslips as well. This is why finding a great paystub template you like is central in making these computations.

An employee must earn the regular minimum wages

You must not leave your employee shortchanged if they could not earn their tips. They should at least earn their regular minimum wage aside from their minimum cash wage. Your check stubs can help you calculate the variance and it will be easier each pay period if their pay varies because of the nature of the job.

States can set their tip credits

The U.S Department of Labor pretty much keeps tabs on tip credits and state minimum wage amounts. States such as Alaska, California, Minnesota, Montana, Nevada and Guam among many others should pay tipped workers the same amount as regular minimum wage.

You must check your state’s labor laws to ensure that you are fully compliant and that you’re employing a happy, motivated employee.

Use your pay stub generator template as your time keeping tool

You can use your own time keeping tools but regularly using your pay stub templates can help you with time keeping and monitoring your employees productivity. You can use it to calculate their hours worked and also their tips because you can keep track of their variable payments each pay period. It’s important to make sure you know how much each employee is earning. And make sure to cover the amounts if their tips haven’t gone quite that high.

The IRS requires employees keep tip records

Your staff can keep their tip records and share them to you monthly. This is also for the intentions of filing income taxes and they can use it as part of the point of sale (POS) system to capture customer tips.

Calculate average tips using per hour computations

Per hour tips are computed through dividing the total sum of tips through their number of hours worked. The sum of all tips is the employee’s share of tips and this assures a safe and fair way of giving out their additional earnings.

So the formula is Average Tips Per Hour = Total Sum of Tips/Hours Worked

This is an example of your waitress earns $5 per hour meaning 150/30 and another earns $20 which is 600/30, then that is the way to capture the accurate amount of you are using it to compare tips.

It’s a matter of using the calculations which you see fit and if you input your payroll yourself, then it’s going to get easier because your paystub generator can help you keep track of changes you make on the fly.

Click here to start purchasing some paystub templates