Tip credit support helps Homebase pay hourly workers compliantly

December 13, 2022
Zach Zhang

Product Manager

Zach Zhang

Think back to the last time you went to your favorite coffee shop. You order your drink of choice and select a tip option once the tablet gets flipped to you. Simple enough, right? Well – not quite. We’re merely at the tip of this iceberg!  

We’re all likely familiar with the concept of a ‘tip’, but this rabbit hole goes much deeper. Payroll providers must understand the nuances of how tips affect payroll and ensure they can support tip credits to handle tipped employees compliantly. 

For a quick overview of tips, check out our previous post, Payroll 101: A few tips on tips

At Check, we understand the importance and intricacies of tips in the service industry. That’s why we’re excited to launch FLSA-compliant (Fair Labor Standards Act) tip credit support in our API and help partners like Homebase simplify the process of accurately and compliantly supporting tip-based employers and employees.

What are Tip Credits?

At a high level, think of tip credits as using the employee’s tips to help the employer meet the minimum wage requirement. An employer is only required to pay an employee $2.13 per hour in cash wages if that amount, combined with the tips received, at least equals the federal minimum wage ($7.25 an hour). If there is a difference between the required cash wage and the applicable minimum wage for a tipped employee, the employer takes a credit for that amount.  

For example, on the federal level, the maximum tip credit that an employer can claim under the FLSA in 2022 is $5.12 per hour. That equals the federal minimum wage of $7.25 minus the minimum required cash wage of $2.13. 

Assuming that employees who work 10 hours must earn at least $72.50 (10 hours * $7.25 = $72.50), only $51.20 of their tips can be applied to meet the required wage requirement during that shift ($72.50 - ($2.13 * 10) = $51.20).

There are additional concepts, such as tip credit adjustments and tip credit overtime, that you must consider too. And, employers also need to consider state and local requirements—some of which do not allow tip credit adjustments. To learn more about all things related to tip credits and how the Check API supports these different surfaces, check out our technical guide on Working with Tip Credits.

Simple integration, robust capabilities

Homebase, a leading all-in-one employee scheduling and payroll system, specializes in helping small businesses manage hourly workforces. They use the Check API to provide FLSA-compliant tip credit support for their customers. 

By combining their robust time clock and timecard capabilities with the ability to process tip credit-related earnings through Check, Homebase can offer a more intuitive experience for their customers. Employers can track hours and tips for employees, and then accurately calculate the tip credit the employer is entitled to take all in one platform. This makes it easier for employers to ensure they comply with labor laws and regulations regarding tip credits. 

Once the information is passed to Check, we help ensure that the tax and filing process is seamless too. Our processes help reduce the risk of error and provide peace of mind for Homebase users. 

“By pairing our time clock and calculation capabilities with Check’s ability to store, tax, and file for tip credit-related earnings, we’re able to help employers pay tipped employees compliantly,” says Gabriel Hoff, Principal Product Manager at Homebase. “The experience is simple, accurate, and stress-free for our customers. They love it.”

Strong focus on the customer experience, specifically for small businesses with hourly workers, is what helps Homebase differentiate in a competitive market. Earlier this year, they were recognized as the best payroll software for that segment by Fit Small Business. 

Questions about tip credits? We’re always here to help. Feel free to contact us for more info.

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