Tipped employees produce their own set of payroll requirements. You must be able to segregate, withhold on, and report both reported and charge tip income. Most large establishments, those with 10 or more employees (including non-tipped employees) on the typical day, must also file Form 8027 and be able to allocate tips on the W-2's of those people who under-reported their tip income.
CCIS Payroll processes employees that are tipped either directly, such as servers, or indirectly, such as bussers, cooks, and greeters. To indicate that an employee is tipped, select the appropriate Tip Status on the Pay Rates tab of the Employee Master Record.
Processing of reported tips and tips deemed wages
CCIS Payroll separates tips into Tips and the maximum amount of reported tip income that is allowed to be applied to meet the employer’s federal minimum wage obligation, we call TDW. That amount is derived from the FLSA values that are stored in the Federal Tax Table as follows:
The federal minimum wage is kept in the Married Amount field of the Deductions section of the Federal Tax Table. Record 100 times the amount, $5.85 = 585. The Maximum Tip Credit Against Minimum Wage is found in the Percent field of the Deductions area.
Please note that this value has no relation to the Credit for Employer Social Security claimed on IRS Form 8846. Please read this article from the IRS for more information.
http://www.irs.gov/businesses/small/industries/article/0,,id=98463,00.html
CCIS Payroll separates tips deemed wages on all registers. If you are recording live payroll using Time Entry, it also computes the value.
Here's how it works. The Earnings area of the Payroll Recording Window for all tipped employees shows the label TDW in place of the Tax Def’d label. When doing live payroll, enter the total amount of tips reported by the employees using the substitute IRS Form 4070 in the Earnings field labeled Tips. Please remember to include the value of any charged tips, or service charges that the employee earned.
When you press Compute, CCIS Payroll computes the employee's effective hourly wage. If this is below the federal minimum wage in the Tax Table file, money will be taken from the Tips and put into the TDW. The TOTAL of Tips and TDW is placed in the Tips deduction field and subtracted from the check. It is reported as FICA tips on the 941, and W-2.
If you need to change the amount of reported tips, return to the Tips income field and re-enter the TOTAL amount of reported tips from Form 4070. The software will divide it up for you.
During After the Fact, Cancel Check, or Adjust, the TDW field acts like any other. There is no automatic division of tips. The amount reported as FICA tips is still the SUM of Tips and TDW.
This sum is also recorded as a Tips deduction in After the Fact and Cancel Check.
Reducing withholdings for tipped employees
It sometimes happens that a tipped employee has insufficient cash wages and charge tips to cover the required withholdings. In such situations you can either adjust deductions or taxes manually, or have CCIS Payroll do the adjusting for you.
To have CCIS Payroll do the adjusting:
1. Choose the Clients link and retrieve the Client 2. Select the Edit button
3. Select the Preferences tab
4. Select the Reduce W/H to cover taxes on tips checkbox 5. Select the Save button.
The next time there are not enough earnings to pay the taxes, CCIS Payroll will reduce first Federal, then State withholdings until the check has a zero balance, or it runs out of withholdings. FICA and Medicare are never adjusted. CCIS Payroll stops with a message if it runs out of withholdings. You can then enter a negative deduction that covers the shortfall and post the check. The shortfall can be collected from later checks.
How TDW is computed
The Fair Labor Standards Act defines both the minimum wage and the maximum value that may be taken from reported tips to make up the minimum wage.
The federal minimum wage is kept in the Married Amount field of the Deductions section of the Federal Tax Table. Record 100x the amount. The Maximum Tip Credit Against Minimum Wage is found in the Percent field of the Deduct ions area.
Please use this link to the US Department of Labor for more information:
http://www.dol.gov/esa/programs/whd/state/tipped.htm
CCIS Payroll totals the wages and hours from the input screen. It divides the wages by the hours to get the hourly wage. This figure is compared to the minimum wage. If it is less than the minimum wage, the software will multiply the total hours by either the actual shortfall, or the statutory maximum from the Federal Tax Table, whichever is less. The result is placed in TDW and subtracted from Tips.
This calculation occurs every time you press Compute in Time Entry mode.
Please note that this value has no relation to the Credit for Employer Social Security claimed on IRS Form 8846. Please read this article from the IRS for more information.
http://www.irs.gov/businesses/small/industries/article/0,,id=98463,00.html
Forcing payment of Minimum Wage
The Fair Labor Standards Act defines the minimum wage that an employee must be paid, and a minimum cash wage that a tipped employee must receive.
There are times when a tipped employee does not receive enough tip income to bring his pay rate up to the mandated minimum. In such situations you can either adjust earnings manually, or have CCIS Payroll do the adjusting for you.
To have CCIS Payroll do the adjusting:
1. Choose the Clients link 2. Retrieve the Client 3. Select the Edit button 4. Select the Preferences tab
5. Select the Force Minimum wage checkbox 6. Select the Save button.
The next time a tipped employee’s rate does not meet the minimum wage; CCIS Payroll will automatically add the required difference to the 8th earnings field.
How to force State minimum wage
As discussed, CCIS Payroll uses the Federal rules to compute the amount of reported tips that can be used towards payment of minimum wages to tipped employees.
The values come from the Federal Tax Table. The federal minimum wage is kept in the Married Amount field of the Deductions section of the Federal Tax Table. Record 100 times the amount,
$5.85 = 585. The Maximum Tip Credit Against Minimum Wage is found in the Percent field of the Deductions area.
You may be in a state whose minimum wage is higher than the Federal minimum wage. CCIS Payroll can force payment of your state minimum wage if you make two simple changes to the Federal Tax Table.
Do not change any values if your state has no minimum wage, or has a minimum wage that is lower than the Federal. By law you must pay at least the Federal minimum wage.
Begin by changing the Federal minimum wage to reflect your state. The federal minimum wage is kept in the Married Amount field of the Deductions section of the Federal Tax Table. Record 100 times the amount, $5.85 = 585. Change that value to the State minimum wage.
Next, determine the Maximum Tip Credit Against Minimum Wage. You obtain this information from your state. This link to the US Department of Labor has a synopsis but may not be current.
http://www.dol.gov/esa/programs/whd/state/tipped.htm
The FLSA rules supersede the state so carefully compare the state value with the FLSA. If the state value is less than the FLSA, change the Percent field of the Deduct ions area to that value. For example, if your state allows $2.50, record that value instead of the FLSA value.
If the amount permitted by your state is greater than the FLSA value, do NOT change. Use the FLSA value instead.
You will need to record these values every year since the Tax Table Service supplies the default Federal values.
Recording meal allowances
CCIS Payroll has three ways to treat meals: as ordinary income, as non-taxable reimbursements, or as ordinary deductions. None of the methods exempts certain portions of meals from any accrual or withholding.
1. To treat meals as ordinary income
• Create an income label called Meal and record the value of meals in this field.
• All withholdings and accruals will be performed as for ordinary income.
2. To treat meals as non-taxable reimbursements,
• Create a deduction label called Meals.
• Record any meals as negative amounts by preceding them with a minus sign.
3. To treat meals as ordinary deductions,
• Create a deduction label called Meals and record meals as a deduction
• You can even store them in the Deductions tab of the Employee Master Record if you like.
Recording charge tips
Charge tips are special cases in that they must be both reported as tip income to the employee for W-2 purposes, and, since he did not receive them, remitted to him as well. Also, they must be tracked for purposes of Form 8027.
Processing the income side of Charge tips is handled automatically. Just be sure that the amount of charge tips is included in the total reported in the Tip earnings field.
The reimbursement side needs to be entered manually while in Time Entry. To prepare to record charge tips:
1. Select the Clients link.
2. Choose Open.
3. Retrieve the Client.
4. Select the Edit button.
5. Select the Labels tab.
6. Create a Deduction label called "Charge Tips".
7. Select Save to save the changes.
This new label serves as a place to hold the reimbursement. When you pay the employee, click beside the Charge Tips label. Then, enter the amount of charge tips as a negative. This causes the amount to be added back to the employee’s check.