FLSA 29 U.S.C. § 203(m)

Tip Credit

Employer allowance permitting tipped employee direct hourly wages to be below minimum wage ($2.13/hr).

Detailed Definition & Statutory Context

Tip Credit is governed by FLSA 29 U.S.C. § 203(m) standards across corporate payroll administration, statutory tax withholding, and general ledger labor accounting. Rigorous compliance with Tip Credit prevents IRS Form 941 deposit penalties and FLSA wage-and-hour litigation.

Statutory Formula & Equation

            Tip Credit = Federal Minimum Wage ($7.25) - Direct Cash Wage Paid ($2.13) = $5.12/hr
          

General Ledger / Payroll Journal Entry Standard

            Debit: Gross Payroll Expense / Employer Tax Expense

            Credit: FICA Taxes Payable / Federal Income Tax Payable / Net Pay Cash

Common Operational Pitfalls

Excluding non-discretionary bonuses from FLSA overtime regular-rate calculations.
Failing to cap Social Security tax withholding once employee earnings exceed the $168,600 wage base.
Misclassifying non-exempt hourly employees as exempt salaried workers.

Used in these Payroll Calculators

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Authoritative Statutory Source

Source: https://www.dol.gov/ ↗