How to Handle Tip Reporting in Dynamics GP
Posted by Jen Bieker on March 5, 2014
Employees who receive cash tips of $20 or more in a calendar month while working for you, are required to report to you the total amount of tips they receive. The employees must give you written reports by the tenth of the following month. Employees who receive tips of less than $20 in a calendar month are not required to report their tips to you but must report these amounts as income on their tax returns and pay taxes, if any.
Cash tips include tips received directly from customers, tips from other employees under any tip-sharing arrangement, and charged tips (e.g., credit and debit card charges) that you distribute to the employee. Both directly and indirectly tipped employees must report tips received to their employer.
In Dynamics GP, you can set up tips pay codes and you also have the ability to pay employees the difference between their hourly wages, the reported tips, and the state’s minimum wage.
Here is how you should set up Dynamics GP to handle the reporting requirements and calculations for tipped employees.
1. Set up a new Pay Code(s)
a. Pay Type = Reported Tips (or Charged Tips)
b. Indicate if the tips are received directly or indirectly.
c. Leave all of the Subject to Taxes boxes marked as applicable
d. Select the Pay Period (i.e., select Biweekly if you pay bi-weekly)
2. Set up a new Pay Code(s)
a. Pay Type = Minimum Wage Balance
b. Pay Rate = state's minimum wage amount
c. Pay Period = whatever you entered in step 1d
d. Leave all of the Subject to Taxes boxes marked as applicable
3. Make sure Payroll Setup - Options hs the box marked for Calculate Tip Allocation
a. Enter the Tip Allocation Rate
4. In the Employee Additional Information Maintenance window, be sure to mark the box 'Caluculate Minimum Wage Balance' for any employee that needs to receive the minimum wage balance.
5. Assign the new pay codes you set up in steps 1 and 2 to any employees that you have marked the box 'Calculate Minimum Wage Balance'
As part of the payroll process, use the reported tips pay code you set up to enter the tips that the employee reports.
In the details for the reported tips, you can enter the receipts:
Here is how Dynamics GP calculates:
1. Totals the gross pay from all pay codes that you've entered transactions for
2. Calculates minimum gross pay based on total hours times the minimum wage per hour from the Pay Code you set up in step 2
3. If the calculation from step 2 is greater than the calculation from step 1, Dynamics GP gives the employee an amount to make up the difference
Reported tips and charged tips are counted as part of the employee's taxable wages but are not included in the employee's net pay. They are only included in gross pay to calculate the minimum wage balance.
Reported tips are used to calculate the taxes (they are part of the Taxable Wages) but are not part of the Gross Wages or Net Pay because they have already been paid to the employees. The employee's check stub will show the reported tips but will not add it into Gross Pay.
Written By: Georgia Stewart, Crestwood Senior Consultant