How is Payroll Handled for Tipped Employees?

Handling payroll for tipped employees involves distinct processes depending on whether tips are received in cash or via credit cards. Credit card (CC) tips are often retained and reported as part of payroll, ensuring that employees receive their complete tip earnings in their paycheck at the end of the pay period. On the other hand, some clients provide cash tips directly to employees at the conclusion of their shifts. It's crucial to report these cash tips for tax purposes. Employers must calculate the hourly wage and tips received for any given shift to ensure the employee is receiving the legal minimum wage per hour. If the total falls short, a makeup payment is necessary to fulfill the minimum wage requirements. Effective communication with your payroll provider is essential to ensure they align with your specific process for handling tipped employees, whether through CC transactions or cash payments.