BenefitMall Identifies Seven Tips for Tipped Employees

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BenefitMall®, the leading provider of the nation’s largest portfolio of employee benefits, HR and payroll products and services, identifies payroll challenges for tipped employees.

BenefitMall®, the leading provider of the nation’s largest portfolio of employee benefits, HR and payroll products and services, identifies payroll challenges for tipped employees. Various small businesses rely heavily on tips or work solely on tips as income. BenefitMall identified these challenges as the following:

1.    Minimum Wage for Tipped Employees: Federal law determines the minimum wage rate at which employees can be paid. Although individual states set their own minimum wage rate, unless the state rate is higher, employers must pay their employees based on the federal minimum wage. This is true for tipped employees as well.

2.    Overtime for Tipped Employees: When an employer takes advantage of the tip credit, there is a special overtime rule that needs to be applied when calculating the overtime rate. For any overtime hours worked the maximum tip credit remains the same. In other words, the employer can take tip credit of no more than $5.12, regardless of how many hours the employee worked.

3.    Tip Credit Notice Requirement: A tip credit regulation under the Fair Labor Standards Act requires employers to provide oral or written notice to each employee that the employer is taking the tip credit and how the employee’s tips will be applied to their wages.

4.    Tips versus Service Charges: Beginning in January 2014, IRS Rev. Rul. 2012-19 classifies service charges (sometimes referred to as automatic gratuities) as regular wages rather than allowing them to be considered tips. As a result, employers will need to include service charges in employee wages and must withhold payroll taxes from that income.

5.    Pooled Tips: In some establishments, employees who regularly and customarily receive tips are required to contribute a portion of their tips are required to contribute a portion of their tips to a pool, which is then divided among a group of employees. Employees may only contribute any amount in tips received that are in excess of minimum wage when combined with their hourly wage. Tips from a pool cannot go to employees, like chefs and dishwashers, who don’t usually receive tips.

6.    Reporting Tips: Employees receiving more than $20.00 per month in tips must report the total amount of their tips to the employer by the 10th day of the following month. The IRS provides Form 4070, Employee’s Report of Tips to Employers for this purpose, although employees may use anything similar to complete this reporting. The report must include the employee’s name, address, social security number, employer’s name and address, the period that the report covers and the total tips received.

7.    Tips in Excess of Minimum Wage: Businesses that employ workers who receive tips for providing, delivering or serving food or beverages for consumption and incurred the employer’s portion of Social Security had Medicare taxes (FICA) on those tips may be entitled to a tax credit.

“Payroll can be a unique challenge for businesses that employ tipped workers,” BenefitMall’s Senior Vice President of Payroll Sales Steve Cohen said. “Complex regulations that change from federal to state and local levels make handling payroll for tipped employees a complicated undertaking for many small businesses. By understanding government regulations concerning tipped employees, employers can take appropriate steps to reduce risk and ensure compliance.”

To learn more about payroll challenges for tipped employees please visit our business blog. If interested in learning more about our payroll services please Contact BenefitMall today.

About BenefitMall
Headquartered in Dallas, Texas, BenefitMall works with a network of 20,000 brokers and CPAs to deliver employee benefits and HR/ payroll services to more than 200,000 small and medium sized businesses.

BenefitMall, the largest national General Agency, merged with the second largest privately held payroll company, CompuPay, in 2012 through equity financing led by Austin Ventures to create an integrated company that is “all together, better.”

BenefitMall operates HealthCareExchange.com, the leading online community for information regarding the Patient Protection and Affordable Care Act.

More information is available at http://www.benefitmall.com.

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Sue Schwartz
BenefitMall
214-605-7495
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