Dealing with tipped employees can be a full time job in its self.
In Massachusetts a tip credit of $5.37 an hour is allowed, which means
that you only have to pay your tipped employees $2.63 an hour if
there are enough reported tips to bring their hourly rate up to the current
minimum wage of $8.00. If the reported tips do not bring the employee up
to the minimum wage, the employer must make up the difference. Advanced Payroll will calculate the actual hourly wage that needs to
be paid in the event tips are not adequate. Advanced
Payroll will also calculate the hourly overtime rate for you when applicable.
The current overtime rate for a tipped employee is $6.63 an hour
((8.00*1.5)-$5.37 tip credit)= $6.63. *Please note: California does not
currently have a tip credit.
Restaurants also need to file forms 8027 and 8846 annually.
Form 8027 is a summary of the indirect and direct tips reported and
the amount of charged sales receipts showing tips and total sales for the
establishment. The purposes of this form is to: (1) establish the percentage
of tips reported to make sure they are at least 8%; (2) allocate tips if
the reported tips are not at least 8%; (3)
report information needed to calculate the percentage of cash and charge tips to
sales receipts. This by no means that employees only have to report 8% of
their sales as tips. Employers must encourage employees to declare
100% of their tips. Current guide lines suggest that reported cash
tips should be within 2% of the percentage shown for charged receipts.
If your average charged tips come to 18% than cash tips should be between 16%
Form 8846 - annual return that shows the amount of tips in
excess of the minimum wage requirements on which the
employer paid Social Security and Medicare tax. This is a valuable
return that can save the employer thousands of dollars at tax filing time.
Both forms 8027 and 8846 are included in the restaurant
Employees pay stubs also reflect any year-to-date withholding
shortfalls, so the employee doesn't have any surprises at tax filing
time. In Massachusetts it is quite common for tipped employees to receive
$0.00 pay checks. Since they are only being paid $2.63 an hour, there usually
is not enough money available to pay the proper amount of withholding.
Employees need to know how much would have been withheld if the funds had been
available so that they can make arrangements to pay additional withholding .
We can also customize your weekly payroll reports to reflect the
information that you need at no additional expense.