A tip credit is a monetary or percentage amount (established by US Federal or state government) that can be deducted from the minimum wage to account for tipped employees who primarily make their income on tips. However, when tipped employees work more than one job at more than one pay rate and the organization uses weighted overtime averages to determine overtime rates, the organization must use the minimum wage before any applicable tip credits.
For example, Beth works 38 hours as a server at $2.38 per hour and 7 hours as a bartender at $11.00 per hour, for a total of 45 hours, which includes 5 hours overtime. If the organization uses weighted rates to determine overtime wages, the system calculates the total pay using the following formula:
Regular Pay + Overtime Pay = Total Pay
The Regular Pay is the sum of each hourly rate multiplied by the hours worked. In this example, Beth receives $90.44 for her server shifts ($2.38 x 38 = $90.44) and 77$ for her bartender shifts ($11.00 x 7 = $77.00) for a total of $167.44 for the week.
The Overtime Pay is calculated using the following formula:
Overtime Pay = [(Minimum Wage x Hours Worked) + (Non-tipped Hourly Rate x Non-tipped Hours Worked)] / Total Hours
If the state minimum wage is $5.15, the formula for Beth calculates the following:
[($5.15 x 38) + ($11.00 x 7)] / 45 = $6.06
You can now multiple the wage by the number of hours worked, resulting in $6.06 x 5 = 30.30. The total pay for Beth then amounts to 167.44 + 30.30 = 197.74.
Parent topic: Payroll Preprocessing Administration