There are two types of credits you can utilize within Gusto. These credit tips are different than cash or paycheck tips. Click the dropdowns below to learn more.
The FICA tip credit is a credit an employer may receive credit for the Social Security and Medicare taxes paid on their employees’ tip income that is not used to meet the federal hourly minimum wage rate of $5.15:
At the end of the year, you can run a report to show you FICA tip credits, which help fill out Form 8846 and file the form along with your business’s tax returns. You can also reference this report throughout the year to estimate the credit you may be able to claim on already processed payrolls.
Note: at this time Gusto doesn't file Form 8846. This form will need to be filed outside of Gusto.
To qualify you must:
The credit applies only to tips received by employees serving food and beverage. It is not applicable to other tipped employees.
To find your FICA Tip Credit report in Gusto:
The Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, record keeping and child labor standards. Minimum wage is the lowest hourly rate that companies may legally pay their workers. In the United States, there are generally three types of minimum wage requirements. Minimum wage rates are mandated at the federal, state and local level. Some jurisdictions have additional requirements, such as industry-specific rules. Many states have set their own minimum wage law. In addition, some cities and counties have passed “living wage” laws, which also establish a minimum pay rate.
Note: The federal minimum wage is set at a $7.25 minimum per hour for non-exempt employees. If a state or local minimum wage is higher than the federal minimum wage, you must use the highest applicable minimum wage.
The FLSA tip credit allows the employer with hourly tipped employees to pay an employee less than the hourly minimum wage so long as the employee's regular wages combined with their tips received equal or exceed the minimum wage. If the employee does not receive enough tips to meet minimum wage, the employer must pay them the difference to raise their hourly rate to the minimum wage. Tip credits are NOT deducted from the employee's pay, however, a limited amount per hour can be claimed as a credit toward the federal or state minimum wage obligation, whichever is higher.
This number needs to comply with both your federal and state minimum cash wages. Federal is $2.13 per hour, but many state minimums are above this. For this example, we're using the minimum cash wage of $2.13 per hour.
Minimum wage - cash wage = tip credit
$7.25 - $2.13 = $5.12 tip credit
When you process a payroll, if minimum wage adjustments are required, you'll see "Adjusted" next to the employee’s gross pay on page one.
For specific questions about the FLSA tip credit law, or minimum wage requirements, contact the Department Of Labor directly at (866) 487-9243.
If you've set up FLSA tip credits, beginning October 1, 2019, whenever local or state laws mandate a minimum wage increase, Gusto will let you know a month in advance.
Then, to help you stay compliant, we’ll automatically adjust the minimum wage in Gusto when it takes effect.
Federal, state, and local minimum wages
While the Federal minimum wage has been $7.25 since 2009, there are state-specific, and even local, minimum wage requirements that you may not be aware of.
It’s important that your minimum wage pay is up-to-date with minimum wage laws for any state and city where you pay employees.