Payroll Processing → Time Entry Grid → Tipped Earning/Employee

Payroll Processing → Individual Time Entry → Tipped Earning/Employee

Tipped Employees don’t follow the traditional overtime rate calculations (Time and a Half). Due to this, one must determine the Tip Credit to calculate a tipped employee's overtime rate properly. According to the federal Fair Labor Standards Act (FLSA), a tipped employee is to be paid an overtime rate. Overtime hours are those worked in excess of 40 per week, and for tipped employees, this must be based on their regular rate of pay. This cannot be less than the current federal minimum hourly wage of $7.25 or the applicable state minimum wage, if higher. 

If the state Tip Credit (State Minimum Wage - State Tipped Minimum Wage) is greater than the Federal Tip Credit ($5.12 = $7.25 - $2.13), you’ll use the calculations below. The Heartland Payroll system will calculate all of this for you. All you’ll do is enter the overtime hours, and the rate will be determined for you!

To determine the Federal Tip Credit:

1. $7.25 (Federal Minimum Wage for Non-Tipped Employees) - $2.13 (Federal Tipped Minimum Wage)

= $5.12 is the Federal Tip Credit

Use this formula to calculate the Overtime (OT) Tipped Rate:

1. State Minimum Wage for Non-Tipped Employees - State [Employee] Tipped Minimum Wage = Tip Credit
2. State Minimum Wage for Non-Tipped Employees x 1.5 = State Minimum Wage Overtime Rate
3. Result from Step 2 (State Minimum Wage Overtime Rate) - Step 1 (Tip Credit) = OT Tipped Rate

Federal & State Minimum and Tipped Wages are the Same

For states that follow federal minimum wage laws, the federal tip credit must be determined for proper overtime wage and rate calculation when the state and/or city has the same Minimum Wage and Tipped Minimum Wage as the Federal Rates. 

Federal Minimum Wage: $7.25

Federal Tipped Minimum Wage: $2.13

Oklahoma Minimum Wage: $7.25

Oklahoma Tipped Minimum Wage: $2.13

How to calculate Tipped Overtime for a State that uses Federal Minimum Wage:

1. $7.25 (Oklahoma Minimum Wage for Non-Tipped Employees) - $2.13 (Oklahoma Tipped Minimum Wage) = $5.12 (Tip Credit)
2. $7.25 (Oklahoma Minimum Wage for Non-Tipped Employees) x 1.5 = $10.875 (Oklahoma Minimum Wage Overtime Rate)
3. $10.875 (Step 2) - $5.12 (Step 1) = $5.755 (Oklahoma OT Tipped Rate)

Results: When reviewing employee pay stubs or the organization's payroll register, applicable employees should have an Overtime Tipped rate of $5.755 [$5.76]. This amount will be multiplied by the hours worked in the current pay period.

Federal & State Minimum and Tipped Wages are Different

In this scenario, the state and/or city has alternative Minimum Wage Rates and Tipped Minimum Wage Rates compared to the Federal Rates. Not all states will have alternative server and bartender rates. More commonly, there will only be a minimum wage rate and a tipped minimum wage rate with no differentiations between tipped employees.

Colorado State Minimum Wage: $13.00/hour

Colorado state Tipped Minimum Wage: $6.38 (server) + tips

Colorado state Tipped Minimum Wage: $8.23 (bartender) + tips

How to calculate Tipped Overtime for a State that differs from Federal Minimum Wage:

1. $13.00 (State Minimum Wage for Non-Tipped Employee) - $6.38 (Employee Tipped Minimum Wage) = $6.62 (Tip Credit - server)
2. $13.00 (State Minimum Wage for Non-Tipped Employee) - $8.23 (Employee Tipped Minimum Wage) = $4.77 (Tip Credit - bartender)
3. $13.00 (State Minimum Wage for Non-Tipped Employee) x 1.5 = $19.50 (State Minimum Wage Overtime Rate)
4. $19.50 (Step 3) - $6.62 (Step 1) = $12.88 (Colorado OT Tipped Rate - server)
5. $19.50 (Step 3) - $4.77 (Step 2) = $14.73 (Colorado OT Tipped Rate - bartender)

Results: When reviewing employee pay stubs or the organization's payroll register, applicable employees (in Colorado) should have an Overtime Tipped rate of $12.88 or $14.73. This amount will be multiplied by the hours worked in the current pay period.

Tipped Overtime for an Employer Electing to pay more than Minimum Wage

Kentucky follows federal laws in relation to minimum wage and tipped minimum wage. However, a Restaurant/Bar can pay their employees more than the minimum wage. For example, $5.00/hour + tips is more than the tipped federal minimum wage of $2.13 + Tips. 

Federal Minimum Wage: $7.25

Federal Tipped Minimum Wage: $2.13

Kentucky Minimum Wage: $7.25

Kentucky Tipped Minimum Wage: $2.13

Use this formula to calculate the OT Tipped Rate:

1. State Minimum Wage for Non-Tipped Employees - Employee's Tipped Wage (if different from state and federal) = Tip Credit
2. State Minimum Wage for Non-Tipped Employees x 1.5 = State Minimum Wage Overtime Rate
3. Step 2 (State Minimum Wage Overtime Rate) - Step 1 (Tip Credit) = OT Tipped Rate

Example: Your employee Kara Mell worked 8.67 overtime hours during this pay period as a tipped employee. Since tipped employees don’t follow the traditional Time and a Half for overtime calculations, we manually calculated the rate for this pay period.

Calculating OT for an employee that’s paid more than the minimum tipped wage of $2.13:

1. $7.25 (Kentucky Minimum Wage for Non-Tipped Employee) - $5.00 (Kara Mell's Tipped Wage) = $2.25 (Tip Credit)
2. $7.25 (Kentucky Minimum Wage for Non-Tipped Employee) x 1.5 = $10.875 (State Minimum Wage Overtime Rate)
3. $10.875 (Step 2) - $2.25 (Step 1) = $8.625 (Kara Mell’s OT Tipped Rate)

Results: $8.625 (OT Tipped Rate) x 8.67 (OT Hours Worked) = $74.78. For this pay period, the overtime rate is $8.625 [$8.63], and the amount earned is $74.78.

*Please be advised these are the minimum wage amounts as they are available at the time of writing. Please contact your state’s labor agencies regarding the current year's minimum wage rates for the most accurate rates.