7shifts Payroll won't allow an employee's net pay to be negative, but it can be $0. If an employee doesn't have enough wages to cover taxes (e.g., from cash tips or imputed pay), our system will:

• reduce employee tax amounts automatically
• surface a cash tip shortfall warning to the employer
• allows payroll submission without blocking

The employee will reconcile any underpaid taxes when they file their income tax return at year-end. Similar to how employees pay taces for tips they did not claim until the end of the year.

For example: 

If an employee owes $100 in taxes, but only earns $99 in wages, payroll will deduct $99, and the remaining $1 will be settled during tax filing.

Handling Cash Tips & Deductions

Post-Tax Deductions Options (Cash Tips Paid Out) 

To avoid negative net pay, we recommend not paying out cash tips in advance. Instead:

• Use 7shifts tip management tools (i.e., tip payouts or tip calculation formulas) to add tips to payroll
• If handling cash tips manually (declaring cash tips/tips already paid through payroll), split the payout: give half in cash, pay the other half through payroll to cover taxes

For example, this scenario covers an employee who earns most of their income from tips and have a low hourly wage:

If an employee earns $200 in cash tips, the employer pays $100 in cash and $100 via payroll. 

Their tax liability may exceed their hourly earning. Since cash tips are considered taxable income, this ensures taxes are covered. If an employer does not split cash tips and instead pays the full amount in cash, the employee may not have enough taxable wages to cover the required payroll taxes. In this case, submission may be blocked due to insufficient funds for tax withholdings.

Pre-Tax Deductions/Benefits Options (Benefits & Contributions)

If an employee's net pay isn't high enough to cover benefit deductions:

• Payroll won't block submission, but the deduction won't be withheld
• The employer can:
  • Pay the full benefit premium outside of payroll
  • Increase the employee's gross pay using a custom earnings code. Custom earnings allow flexibility for special payroll scenarios outside standard wages, such as lump-sum adjustments for underpaid wages. Employers can set up custom earnings in 7shifts Payroll as needed to ensure compliance and proper tax calculations.

Deductions don't make up in the next payroll; they will continue at the normal rate unless adjusted in the employee profile.