Tip Credit Calculations & Tipped Roles

Updated November 07, 2024 18:34

Simplify your payroll process by designating tipped roles and allowing 7shifts to automatically calculate tip credits or shortages. This helps bridge the gap with your state’s minimum wage rate and reduces manual calculations.

Check out our blog to learn more about Tip Credits and how they work (regulations and calculations).

Prerequisites

⚠️ Tip Credit Calculations are only available for Accounts located in the U.S., and do not apply to certain state (Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington. As well as any Accounts with a jurisdiction set to 'Federal USA' within their Company Settings)

⚠️ Only Admins and Managers/Assistant Managers with permissions 'Can run reports', 'Can manage roles' can access Tipped Credit Calculations.

⚠️ Wage-based roles must be enabled to use Tip Credit Calculations.

SKIP AHEAD TO:

Enable Tip Credit Calculations
Run Payroll
Reports and Tip Credit Calculations
Glossary

Enable Tip Credit Calculations

Login as an Admin.
In the left navigation bar, head to Settings (or, click on your profile photo) > Company Settings > Labor & Compliance.
Scroll to the section Wages & Pay > ensure Wage-based roles is enabled. Click here to learn more! :
Enable Tip credit calculations:
Scroll to the bottom and hit Save!
Next, select Set up tipped roles:
Once redirected to the Roles setting page, use the Tipped Role toggles to enable tipped employee roles:
You can also enable a Tipped Role while creating a new role! Click on the + Add Role button on this page to fill out the role's details:
You're done!

Run Payroll

If you're using 7shifts Payroll:

Tip Credit Calculations will be done automatically and paid directly to Employees.

Learn more about 7shifts Payroll here. Already a 7shifts Payroll user? Click here to run Payroll!

If you're not using 7shifts Payroll:

Tip credit calculations will be done automatically and can be viewed in the Worked Hour and Wages report.

Reports and Tip Credit Calculations

When you're ready to pull a report on Tip Credit Calculations, head over to Reports > Worked Hours and Wages > use the filters to narrow down your search results > click Get Reports.

⚠️ If the date range you have selected is partway through a tip pool period or tip credit calculation timeframe, employees’ tips to be paid and tip shortage may be inaccurate.

⚠️ It is expected behaviour that the Tip shortage field will remain empty until the week has ended.

Glossary

Here's a list of terms you may encounter during your Tip Credit Calculations setup journey:

Tipped Minimum Wage -The tipped minimum wage in the US refers to the hourly wage that employers are required to pay tipped employees before factoring in tips. Tipped employees must receive a minimum wage of $2.13 per hour, however, the minimum and maximum tipped wages/credits vary across states and cities.

It is recommended that you validate your state’s minimum wage for tipped employees. Visit the Department of Labor's website here.

Wage-based Roles - This setting allows employees to have different hourly wages for each role.

Tip Pooling - a tip pooling arrangement can ensure fair distribution among restaurant staff, including back-of-house workers as tipped employees. If your tips are pooled, it's recommended to use 7shifts' Tip Pooling. If tips are kept individually, you will need to import tip data from your POS system.

Tipped Role - Employees in tipped roles can receive a lower base wage with the expectation that tips will make up the difference to meet or exceed the minimum wage.

Tip Credit - Columns in your Worked Hours and Wages report indicate the total amount of the employee's pay that the Employer is required to make up for with the Employee's tips. It is calculated on a daily basis, and is the difference between the state minimum wage and the Employee's current wage.

Tip Shortage - Columns in your Worked Hours and Wages report indicate how much the Employer owes the Employee if the tips earned don't cover the total tip credit that the Employer is taking. Specifically, if the tips earned are less than or equal to the tip credit. Tip shortage is calculated based on tipped roles, and occurs on a weekly basis (except for Massachusetts, where it is calculated daily). The calculation starts from the first day of the week according to the 'Start week on' Company Setting.

Tips Earned - The total amount of tips the Employee earned while working in their tipped roles over the past week.