Jasmine Sandhu

Sites at Penn State ! Log In Entrepreneurship Law Blog Home About Me Blog Purpose Here’s a Tip: Employers Should Claim Tip Credit to OCset Against Minimum Wage for Tipped Employees Search Recent Posts POSTED ON MARCH 18, 2020 BY JASMINE What’s The Tipping Point? Employers Should be Wary of Jayson DeMers, the founder and CEO of EmailAnalytics, detailed the 7 Claiming Tip Credit for Employees’ Expenses Most Entrepreneurs Fail to Prepare For. Two of the expenses that Time Spent on Non-Tipped Duties entrepreneurs fail to consider are related to employees – (1) employee costs and (2) human resources. Here’s a Tip: Employers Should Claim Tip Credit to Offset Against Luckily, entrepreneurs in the service-based industry may claim tip credit to offset against minimum wage obligations under Fair Labor Standards Act Minimum Wage for Tipped Employees (FLSA). This blog post will discuss tip credit generally before providing a Take a Whisk & Start a Business step-by-step guide on how to claim tip credit. from Scratch: Registering Your Kitchen as a “Limited Food WHAT BUSINESSES QUALIFY FOR TIP CREDIT? Before diving into the details, make sure your business qualifies for tip credit. Establishment” in Pennsylvania Recent Comments First, check here and see if your state Najeebah Beyah on What’s The allows you to claim Tipping Point? Employers Should tip credit – purple be Wary of Claiming Tip Credit for states on the map do Employees’ Time Spent on Non- not allow tip credits Tipped Duties at all (e.g. Kimberly on What’s The Tipping California, Alaska, Point? Employers Should be Wary and Washington). of Claiming Tip Credit for Second, to be eligible to claim tip credit, the business must meet two additional requirements: Employees’ Time Spent on NonTipped Duties pjw5238 on What’s The Tipping Owner is in a business where customers give tips for providing, Point? Employers Should be Wary delivering, or serving food or beverages for consumption; and of Claiming Tip Credit for Owner paid the employer side Social Security and Medicare (known as Employees’ Time Spent on Non- FICA) taxes on the tips their tipped employees earned. Click here to Tipped Duties learn more. azs1360 on Take a Whisk & Start a Business from Scratch: Registering WHAT IS TIP CREDIT? Your Kitchen as a “Limited Food Establishment” in Pennsylvania FLSA requires employers to pay all non-exempt employees at least the federal minimum wage of $7.25 per hour, including a cash wage requirement of Greg Archibald on Take a Whisk & Start a Business from Scratch: Registering Your Kitchen as a “Limited Food Establishment” in Pennsylvania $2.13. Thus, an employer may only have to pay the cash wage minimum of Archives $2.13 to their tipped employees by claiming a “tip March 2020 credit” to meet the remaining federal minimum wage obligation of $5.12. January 2020 OK, WHY'D YOU ITALICIZE TIPPED EMPLOYEES? Thank you for noticing – FLSA defines a tipped employee as those who customarily and regularly receive at least $30 per month in tip income. So, workers who receive gifts a few times throughout the year are not tipped Categories Uncategorized employees. Meta Examples of positions that usually qualify as tipped employees include servers, Log in bartenders, and bus persons. Entries RSS However, a cook who receives tips a few times a year is not a Comments RSS tipped employee. Sites at Penn State ALRIGHT, HOW DOES THIS WHOLE THING WORK? Here is a step-by-step guide on how to claim a tip credit for tipped employees: 1. Check Your State’s Minimum Hourly Wage and Cash Wage. As stated earlier, the federal minimum wage is $7.12, while the cash wage is $2.13. However, your state may have higher requirements. Remember, that the minimum is simply a floor – you may choose to pay an hourly rate higher than the required wage. 2. Give Notice to Tipped Employees of Tip Credit. Now, let your team in on the plan. If not, you may be required to pay your state’s minimum wage until you give notice. The US Department of Labor requires employers to give notice to their tipped employees that the employer plans to use the tip credit process. Although the notice does not have to be in writing, it is recommended that employers ask employees to sign an acknowledgement that they received notice. This will help avoid the issue of whether the employee actually received notice. Here is a template notice – you may insert your hourly rate and state’s minimum cash wage requirements: 3. Do Not Dip Your Hands into the Tip Jar. Although not exactly a step, employers need to understand that tips are their employee’s property. Employers must allow tipped employees to keep all tips received, except in situations where an employer has established a valid tip pool. Learn more about tip pools here. 4. Create a System for Tipped Employees to Track Tips and Hours. Record the amount of time that each tipped employee works and the tip amount that they earned during each shift. Ask employees to submit timesheets that require (1) hours per shift, (2) time spent on [X], and (3) tip amount per shift. Here’s an example: Why have employees record “time spent on [X]?” Employees who receive tip credit have sued their employers, claiming that they are entitled to minimum wage for time spent on tasks unrelated to the tipped aspect of their job. Learn more here. 5. Calculate Your Tip Credit. Take that timesheet and calculate how much you can claim as tip credit. The formula: minimum wage minus cash wage. As mentioned above, the federal minimum wage is $7.25, and the cash wage is $2.13. Thus, the tip credit that an employer can claim per hour is $5.12. However, check your state’s minimum wage and cash wage. For example, Pennsylvania’s minimum wage is the same as the federal level of $7.25; however, the cash wage is $2.83. Thus, the tip credit is $4.42 because $7.25 – $2.83 = $4.42. Keep in mind that the minimum wage and cash wage may also be different for overtime hours. Thus, for each pay period, an employer may claim that tip credit as long as the tip amount and the cash wage equal to or more than the minimum wage requirement. Below are some examples, using the federal minimum wage and cash wage. 6. Enter Calculation into Payroll System. Once you’ve finalized the calculations for your tipped employees for the pay period, enter the amount into your payroll system. FINAL TIP This blog post may have made tip credit calculations seem straightforward. However, this is only the tip of the iceberg. Tip credit calculation can get more complicated with different employees, hours, and tips. When considering a payroll system, ask if the system calculates tip credit so you can avoid doing the calculations manually. This way you can still enjoy the benefits of customer gratuities and subsequently offset expenses even if you cannot dip your hands into the tip jar. SOURCE LIST: https://www.dol.gov/agencies/whd/state/minimum-wage/tipped https://www.dol.gov/agencies/whd/fact-sheets/15-flsa-tipped-employees https://www.nolo.com/legal-encyclopedia/tip-pooling-credits-serviceemployees-29804.html https://sevenrooms.com/en/blog/what-is-tip-credit/ https://gusto.com/blog/payroll/what-tip-credit PHOTO SOURCE LIST: Map Image Tip Credit Image Restaurant Server Image Tip Jar Image Calculator Image Iceberg Image All other images are created by author Leave a Reply Your email address will not be published. Anti-spam word To prove you are a person (not a spam script), type the words from the following picture or audio file. Name Email Save my name, email, and website in this browser for the next time I comment. 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