In this Article:
What Are Tips?
As defined by the IRS, tips are discretionary (optional or extra) payments determined by a customer. Employees receive tips from customers and not from their employer. Tips include:
- Cash tips received directly from customers. These are commonly known as declared cash tips (or just cash tips) in the Toast ecosystem.
- Note: Undeclared cash tips cannot be tracked by Toast. The system relies on employee cash tip declarations for full accuracy.
- Tips from customers through electronic settlement or payment, including credit cards, debit cards, gift cards (if applicable), or any other form of electronic payment method. These are commonly known as non-cash tips in the Toast ecosystem.
- The value of any non-cash tips, such as tickets or other items of value.
- Tip amounts received from other employees paid out through tip pools, tip splitting, or any other formal/informal tip sharing agreement.
Tips are the property of the employee. The only exception is when the tipped employees are participating in a valid tip pool. Learn more from the IRS here.
In the Toast ecosystem, mandatory gratuity is not a tip, but rather a type of service charge. Continue reading to learn how to set these two apart.
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Tip Settings in Toast Web
There are many tip settings in Toast Web, including whether a tip percentage should be calculated before or after tax, the suggested tip amounts guests will see, tip withholding, and more. However, this section will specifically dive into how tips are paid to employees and whether employees will receive them daily/nightly or via payroll.
To check or change whether tips are paid to employees in cash or on payroll in Toast Web, navigate to Employees > Shift review > Advanced shift review setup. There's three settings here that should reflect how you'd like tips to be paid and recorded:
- Payout options > Non-cash tips
- Payout options > Gratuities (service charges)
- Declare cash tips > Declare cash tips
The first two offer flexibility into the timing of tips received:
- If Non-cash tips and Gratuities (service charges) are set to Pay out through payroll, employees will receive tips on their paycheck or in their direct deposit on the payroll check date. These amounts will show up under some sort of Tips Owed earning code.
- If one or both of those settings are set to Pay out from the cash drawer, this indicates you are paying those amounts daily/nightly and they are not paid via payroll. These amounts will still show up on payroll as well, but they are associated with a Tips Paid earning code, indicating that they're only being recorded for taxation purposes.
The Declare cash tips setting controls whether employees must declare their cash tips or not during their shift review. If Tipped employees do not declare cash tips is enabled, cash tips will not appear on payroll. If Tipped employees must declare cash tips is enabled, they will appear on payroll, but can appear as a Tips Paid or a Tips Owed earning code, depending on your configuration above.
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What are Service Charges?
The difference between service charges and tips is distinct and important. Service charges are line items added to a check by the business (not the customer) and may be for things such as delivery fees or an automatic gratuity for a large party. Customers are unable to negotiate or determine the amount of a service charge whereas they have total and complete control over the amount of a tip.
When a service charge is paid to an employee, this is known as mandatory gratuity. Employees should not report a mandatory gratuity as tips; employers must classify mandatory gratuities as non-tipped wages. The difference between service charges and mandatory gratuity is outlined in Get Started With Service Charges and Mandatory Gratuity.
Service charges retained by an employer are income to the employer (this is the case under federal law, but your state law may differ). Whether the service charge is attributed to the employee or employer is controlled by the below setting in Toast. To check how this is set on a specific service charge, navigate to Payments > Checks & receipt setup > Service charges and select the Name of a service charge.
Service Charge Settings in Toast Web
In Toast Web, service charges can be created and maintained by navigating to Payments > Checks & receipt setup > Service charges and fees. Several options live here and this page can help you generate a new service charge.
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Tips Reporting in Toast Web
View Tips by Day or Payment Source
From your Toast Web dashboard, select Sales summary from the Quick Actions menu to view the total sum of tips along with the breakdown of tips by payment source. Don't forget to set your date range appropriately.
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View Tips by Cash/Non-Cash Per Employee
Navigate to Reports > Employee performance > Shifts. Looking at the Closed Shifts section, you'll notice each employee and their cash tips and non-cash tips, among other shift review data, who . Select the download icon to create a spreadsheet of this information.
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View and Update Declared (Cash) Tips
From the homepage, select Labor summary from the Quick Actions menu to see tips per employee. Scroll down to the Employee Summary section and select a shift from the bottom of an employee's card (there's two in the screenshot below) to allow you to edit the Cash Tips Declared field.
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Update a Non-Cash Tip
When a non-cash tip needs to be adjusted, this is easily done on the POS as long as the check is from the same business day. Once a payment has been batched/captured overnight, the tip can no longer be adjusted.
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View a Tip Pooling Report
Navigate to Reports > Employee performance > Tip management to view the Tip Pooling report. This is used in conjunction with Toast Tips Manager to divide and redistribute tips based on the rules of a pooling system. Read on to learn more about tip pooling with Toast Tips Manager or see Get Started With Toast Tips Manager.
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Tips in Toast Payroll
Tip Earning Codes
The first thing to note is that tips in Toast Payroll will always be associated with an earning code. The most commonly used codes are Tips Paid and Tips Owed (or variations of these names).
- Tips Paid indicates a portion of tips which have already been paid to the employee before payroll is submitted. The most common method of this is tips paid out in cash immediately after an employee's shift, whether it be from direct cash tips or non-cash (credit card) tips. Any cash tip amounts paid in this method should be recorded as declared tips in a shift review. Tips Paid is an unpaid earning and it is present on payroll runs for wage reporting and taxation purposes.
- This logic applies to Tips Paid - Cash, Tips Paid - Credit Card, Tips Paid CC, or CC Tips Paid as well.
- Tips Owed indicates a portion of tips that are paid via payroll. Tips Owed is associated with any cash or non-cash (credit card, gift card, etc.) tips which are yet to be paid to an employee once payroll is submitted. Different restaurant configurations allow employers to use one or both of these earning types to record any tipped wages an employee receives.
- Some alternate names of this code include Tips Owed - Cash, Tips Owed - Credit Card, Tips Owed CC, and CC Tips Owed.
- Also, restaurants are allowed to create custom earning codes by emailing us this form, so tips may be labeled in other ways besides these two earning codes. Check with your HR team to confirm what earning codes are used for tips.
Sometimes Toast Payroll is asked how to remove Tips Paid or Tips Owed earning codes from payroll runs. Taking in the information above, this question should instead be thought of as how you want your restaurant to pay out tips to your staff. Tips Paid is a reflection of tips that employees have already received based on your settings, so if you'd like to remove this earning code, you'll need to alter your configuration in shift reviews and, if you use Toast Tips Manager, your tip pooling policy and settings to pay out these tips on payroll instead. Alternatively, if you'd like the Tips Owed earning code to be removed, this is a request for paying out all tips outside of Toast Payroll and the configurations will need to be adjusted accordingly.
Note: Toast cannot use the same earning code for different types of tips when using the Tips Manager module.
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Tips on Timesheets and Paystubs
When you use Toast Tips Manager or the direct tip sync methods, the first place you will see tips in Toast Payroll is on an employee's timesheet. Tips will be broken down by shift and their specified earning code.
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Tip Reporting in Payroll
Finally, for payrolls which have been previously submitted, you may view reports in the Report Library to gain insight and data into your tipped wages. In the Standard Report Library, Toast provides the FICA Tip Credit Report, but you may also create custom reports that allow you to add custom fields and filters to your report.
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Bring Tips from POS to Payroll
There are three different methods to get tips from Toast Web to Toast Payroll and each are detailed below:
Tips Manager
Toast Tips Manager is a highly robust and useful feature if your business uses pooled tips. Tips Manager can be used to automatically gather, pool, and distribute tips according to the rules you put in place. Incorrect tips may even be retracted from Toast Payroll for quick adjustments. You may wish to consider the Tips Manager feature for detailed tip pooling policies.
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Direct Sync
The direct sync method is often used when there are no tip pooling policies in place. Each employee's own tips (declared, cash, and/or non-cash) will directly sync from Toast Web to Toast Payroll after they clock out and they do not need to be approved in Toast Web; only in Toast Payroll when the entire timesheet is approved.
Note: If the automatically approved timesheets feature is enabled, direct sync tips will be "approved" when the Start Payroll button is selected on the Preview Payroll step.
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Manually Add Tips
Although there is no automation with this feature, this lets users enter manual tip amounts into payroll for complete control. It can be time-consuming if a large number of employees require manually-added tips, but the opposite may be true for small staff sizes.
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Tips FAQ
How can I determine what tip policy and method are right for my restaurant?
Toast is unable to advise customers regarding appropriate tip pooling for their restaurant. However, all Toast Payroll customers have access to a suite of tools, known as your HR Toolkit, with our partner Mineral. Check out this page for a short, on-demand Toast Classroom covering the HR Toolkit feature of Toast Payroll. You may also find some FAQs here. Customers can also be referred to the Department of Labor website and state wage and hour enforcement agencies for assistance with tip pooling laws, regulations, and guidance.
How can I begin to troubleshoot my tips?
Tips lie in a number of places in Toast and different methods exist for bringing them from Toast Web to Payroll, so here are a few articles that may offer assistance with troubleshooting tips:
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This content is for informational purposes and is not intended as legal, tax, HR, or any other professional advice. Please contact an attorney or other professional for advice.
