Under FLSA, an employee who customarily and regularly receives more than $30 per month in tips. Only tipped employees qualify for the employer tip credit, and the employer must ensure total pay meets minimum wage each workweek.
Why Tipped Employee matters for employers
An employee qualifies as a tipped employee under FLSA if they regularly and customarily receive more than $30 in tips per month. The $30 monthly threshold is a federal floor -- some states use higher amounts. Whether an employee qualifies as tipped affects eligibility for the tip credit, participation in tip pools, and how fluctuating workweek overtime is calculated.
Employees in dual-job situations (tipped work plus non-tipped work for the same employer) require careful tracking. The employer may only take the tip credit for hours during which the employee is performing tipped work. Spending more than 20% of time on non-tipped duties in a workweek eliminates the tip credit for those hours, per the DOL's guidance.
How BEG handles Tipped Employee for clients
BEG Managed Payroll handles Tipped Employee as part of a fully managed payroll service at $25-$45 per employee per month. Clients do not need to track compliance rules, filing deadlines, or calculation methods related to Tipped Employee on their own. Everything is included. Learn about BEG Managed Payroll.
Frequently asked questions
Do employers have to manage Tipped Employee themselves?
No. A managed payroll provider handles Tipped Employee as part of full-service payroll. BEG manages this for clients at $25-$45 PEPM with no system migration required.
What happens if Tipped Employee is handled incorrectly?
Errors related to Tipped Employee can trigger IRS penalties, state agency assessments, or employee disputes. Catching and correcting errors before filing is far less costly than after-the-fact corrections.
How does BEG handle Tipped Employee for managed payroll clients?
BEG tracks, calculates, and remits everything related to Tipped Employee as part of fully managed payroll. Clients do not need to monitor compliance -- that is included in the service at $25-$45 PEPM.
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About the author
Anthony Moretti is VP of Sales at Business Executive Group, where he builds BEG's managed payroll and HR service verticals for employers across Dallas-Fort Worth and nationwide. He writes the BEG Payroll Glossary to give employers plain-English answers on payroll and compliance.
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