Tips in CertiPay Online

Just a brief description of what tips are (in terms of CPO).

So tips are an earning type that have some interesting rules. FLSA establishes that tips (cash and paycheck) can be used to make up the minimum wage difference when an employee is paid less than the minimum wage. Applying tips towards the base pay is called a tip credit. That tip credit has a max (if even allowed by the state). If a tip credit isn’t enough, then the employer must make up the difference with a tip makeup earning (which is a flat). Also of note, tips has its own calculation CPO keeps track of all of these items.

Now that’s the earning side of tips, let’s briefly talk about the taxes side of tips. CPO keeps track of the tips portion of taxable wages for each tax (federal, state, and local). Tips operates the same in every scenario for all taxes EXCEPT social security, where it is reported independently. There is another component to the tax implication, and that is negative checks. A negative check is not allowed, but we can prevent this in a few ways. The first way is to back out post-tax deductions. We reduce these down to zero, but maintain a balance and in the future (no eta) we will be able to apply funds towards unpaid deductions on proceeding paystubs. This is an automatic process. The second way we can reduce funds to prevent negative checks includes reducing pre-tax deductions. This currently is a manual process. So if a client processes and ends up with a negative check (processing will fail), then they will need to check their pre-tax deductions and decide which to forgo for the current pay run. The last way we prevent negative checks is to reduce the tips portion of taxes in the following order: local withholdings, state withholdings, federal withholdings, medicare, social security. Now if taxes are reduced to produce a zero-sum check, then the unpaid portion (only for medicare and social security) will be reported to the IRS at the end of the quarter as uncollected tips. This will again be reported at the end of the year on the W-2 in the uncollected tips box 12 .

Outstanding Items

Now there are a few outstanding items that require attention.

  • In order for a company to have a makeup tip, it must be added as a company earning. This does not get added automatically, so as a part of setup, companies that will use tips must have that added or the pay run will fail if it doesn’t exist when it is needed.

  • Not all states are supported currently, the list below displays all states that are currently supported.

  • No columns exist (yet) on the grid for tips.

  • No late payment currently exists for uncollected tips or unpaid deductions.

Supported states (red not supported)

  • Alabama

  • Alaska

  • Arizona

  • Arkansas

  • California

  • Colorado

  • Connecticut

  • Delaware

  • Florida

  • Georgia

  • Hawaii

  • Idaho

  • Illinois

  • Indiana

  • Iowa

  • Kansas

  • Kentucky

  • Louisiana

  • Maine

  • Maryland

  • Massachusetts

  • Michigan

  • Minnesota

  • Mississippi

  • Missouri

  • Montana

  • Nebraska

  • Nevada

  • New Hampshire

  • New Jersey

  • New Mexico

  • New York

  • North Carolina

  • North Dakota

  • Ohio

  • Oklahoma

  • Oregon

  • Pennsylvania

  • Rhode Island

  • South Carolina

  • South Dakota

  • Tennessee

  • Texas

  • Utah

  • Vermont

  • Virginia

  • Washington

  • West Virginia

  • Wisconsin

  • Wyoming

  • Each of the states that are not currently supported have additional requirements to determine which rate to apply. Some of these requirements are company based, ie is the employer large or small (different states have different definitions of what a large company or a small company is), or if the employer provides health insurance and does the employee accept it (which actually is a requirement on both the company and employee). And then other states have requirements on the employee where they define the employee as being a specific type of tipped employee such as a food service employee or a bartender.

    For additional details, please see the DOL site: https://www.dol.gov/whd/state/tipped.htm