Paying employee tips must be processed in a unique manner because of tax reporting requirements. All tips must be identified within a timecard with a pay type classified either as a Take Home Tip or an Employer Paid Tip. Complete the following steps to create a pay type for tips payments:
1. Go to Payroll > Options > Pay Types tab and click on the Add button to create a new pay type.
2. Enter a pay type Description that describes the tip pay. For example, use the EP-TIP description for Employer paid tip and/or TH-TIP for take home tips.
3. The Base should be set to the Dollar option.
4. The Type option should be set to Employer Paid Tips if the tip is included within the employees’ paycheck. The Take Home Tips option should be used if the cash tips were given to the employee but must be added to the gross pay for tax calculations. Create both pay types if employees are paid using both tips methods.
Click on the OK button to save changes to the pay type. Review the Payroll > Processing Payroll > Entering Employee Timecard Information section for details on entering pay into the timecard.