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Payroll Sales Pro Issue #37:The Earned Tip Credit as a Key Restaurant Payroll Feature
December 19, 2016

December 19, 2016

Restaurant Payroll accounts have a few unique features, such as the Earned Tip Credit, which can be a key selling point that can help you win more payroll deals.

“Entrepreneurs average 3.8 failures before final success. What sets the successful ones apart is their amazing persistence." --Lisa M. Amos

Earned Tip Credit

When calling on restaurant payroll clients, they will no doubt talk about tips. One question to ask, especially if they do the payroll in-house, is “Have you heard of the Earned Tip Credit?” Usually, they say no.

This is a huge money saver for both the restaurant owner and wait staff.

First of all, an explanation of how wait staff are typically paid: Waiters can be paid at a rate below minimum wage because it is expected that they can more than make it up in tips. When you leave a tip for your waiter in cash, it is up to them to report it. However, if you ever add it to the tip line on your credit card bill, it gets recorded into the system and the restaurant pays out one big payout at the end of the shift. Here is how the credit works (taken from the Department of Labor website):

The employer must provide the following information to a tipped employee before the employer may use the tip credit:

1) The amount of cash wage the employer is paying a tipped employee, which must be at least $2.13 per hour;

2) The additional amount claimed by the employer as a tip credit, which cannot exceed $5.12 (the difference between the minimum required cash wage of $2.13 and the current minimum wage of $7.25);

3) That the tip credit claimed by the employer cannot exceed the amount of tips actually received by the tipped employee;

4) That all tips received by the tipped employee are to be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and

5) That the tip credit will not apply to any tipped employee unless the employee has been informed of these tip credit provisions.

The employer may provide oral or written notice to its tipped employees informing them of items 1-5 above. An employer who fails to provide the required information cannot use the tip credit provisions and therefore must pay the tipped employee at least $7.25 per hour in wages and allow the tipped employee to keep all tips received.

Employers electing to use the tip credit provision must be able to show that tipped employees receive at least the minimum wage when direct (or cash) wages and the tip credit amount are combined. If an employee's tips combined with the employer's direct (or cash) wages of at least $2.13 per hour do not equal the minimum hourly wage of $7.25 per hour, the employer must make up the difference.

The really good news for your clients: if they are doing it wrong—which a LOT of restaurants are--they can apply for a refund up to 2 years after the fact. And the best part? PayPros, Inc. will help them with the application so they can get their money back from their years of overpayment!

This could be a huge selling feature for any of your restaurant clients—ask them about it the next time you visit, or make a special effort to go back to your clients to bring it up. A number of our sales reps have reported good results from using this angle as a selling feature for switching to PayPros.


All it takes to refer payroll is to obtain a payroll invoice from the client, then send it to us and we’ll take it from there. When the client signs up with payroll, you get paid a residual commission for the life of the client.

Remember, PayPros can typically save them 20-25% over what they are currently paying and they will get a dedicated customer service rep that really knows them and the ins and outs of their business.

Ask them for a current invoice, send it to us, and when it closes you get residual commission for the life of the client.

For more detailed payroll Talking Points tips and information, see Payroll Tips and Techniques


Think you’re ready to earn Residual Commission for the life of your clients as a Payroll Referral Rep? Contact us by calling (888) 693-4611 or filling out the form at Best Business Payroll--How to Make Residual Commission

We’ll be glad to answer any questions you may have and look forward to helping you become successful in any way we can.


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