What Is a Tip Credit?
The Fair Labor Standards Act (FLSA) allows employers to pay their employees less than the standard minimum wage as long as the employee earns enough tips to make up the difference. That difference–the amount of money between the cash you pay your employees and the standard minimum wage–is called a tip credit. For a tipped employee, minimum wage ends up looking like this:
(Tipped minimum wage) + (Tip credit) = (Standard minimum wage)
What Is the Maximum Tip Credit Allowed?
Each state sets its own minimum wage, tipped minimum wage, and maximum tip credit:
NJ minimum wage is $12.00. The tip credit is $7.87. Hourly wage is $4.13
$12.00 - $7.87 = $4.13
Earning on the check:
Tipped Regular Earning: This is hours worked as a waiter. You will be paid at $4.13 an hour plus your tips.
Tips Cash: Tips you made in cash. This is only reported for tax purposes since you have received this money already. It will not add to the net.
Tips Credit C: These are the tips you made from customers that paid the tip on the credit card. These tips will be paid out on the check.
Tip Credit: This is just a memo. It does not add to the tax. It is informational.
Tips Make Up: If the hours worked plus tips does not equal to minimum wage the system will add earnings here to make up the difference. It is paid out to the employee.
Regular: hours worked that is not for employees that work for tips.