Grumpy Vet Posted June 21, 2019 Share Posted June 21, 2019 Hi all. My 16 year old daughter recently started her first job. She is a hostess at a small local restaurant and bakery. It is a great place and she is really enjoying it. She's worked a handful of shifts and just got her first paycheck. She was initially under the impression she was hourly and not tipped. Apparently that is not the case. She brought me the paycheck and asked me to explain it. I frankly don't understand it. I never worked as a server/host/waiter. The main check is from ADP. It shows earnings in tipped hours, cash tips and credit card tips paid. This paycheck is a rate of $6.25 x 20.5 hours so a gross of 128.13. Her net is $68.19. I see all the deductions for Fed, SS, Med & State. Obviously she is having more than she should taken out. Originally I was thinking we probably need to adjust the W4 and add some allowances - but maybe not since nothing is being withheld (as far as I can tell) for the tips Here is where I'm lost. The cash tips are listed as $28 and the CC tips paid are listed as $153. The Gross pay is listed as $309.13 Then under other benefits and info it lists Tip credit as $78.93 and total hours worked as $20.50. She has rec'd four checks. One ADP check for $68.19 - that i get. Then she has handwritten tip checks for $33, $19 and $33. Lastly - there was a large private party last week and the owner gave her $20 cash for doing a good job. I don't get the correlation between the earnings shown on the ADP check of tips $181 and the handwritten checks for $85 or $105 (with the $20 cash). Also - where does the $78.93 in other benefits and info factor in? I'm pretty sure nothing nefarious is going on but I'd love to be able to understand it a little better. Perhaps things in the hospitality industry are a little more loose than what I'm used to. I'll be curious what the next paycheck looks like so I can try to figure out a pattern, but in the meantime if anyone can give me any insight, I'd really appreciate it. Figured I'd scan the stub as above may be hard to follow: Thanks, GV Link to comment Share on other sites More sharing options...
bearrock Posted June 21, 2019 Share Posted June 21, 2019 Tip credit under other benefits refers to the portion of minimum wage that can be paid with tips. Basically, tipped employees have a lower minimum wage than regular workers before factoring in tips (once factored in, they even out). For example, MD minimum wage is around $10 but tipped minimum wage is $3.6. Meaning the employers can pay up to $6.4 per hour of the minimum wage in tips. If the tips do not add up to make the total hourly wage equal to the minimum wage, the employer must make up the difference. So in her situation, her employer is paying 6.25 of the 10 MD minimum wage. The tip credit makes up the remaining roughly $4 per hour to meet MD minimum wage. And she is getting everything withheld for taxes, including the tips, so you don't have to worry about that later on. That still doesn't explain the discrepancy between the tip received on the paystub and actual money received. It could be as simple as a little lag in payroll calculation and actual payment or maybe something slipped through the cracks. But your daughter should actually have those tips in her hand because the taxes were entirely deducted from her pay. I would encourage your daughter to respectfully approach her supervisor and ask for a clarification. That's great life experience too. Link to comment Share on other sites More sharing options...
Elessar78 Posted June 21, 2019 Share Posted June 21, 2019 I'm plugging this into my payroll software but I will need her social and mother's maiden name to print the report. You can PM me the info. Link to comment Share on other sites More sharing options...
PleaseBlitz Posted June 21, 2019 Share Posted June 21, 2019 @bearrock is right. She's getting taxed on her wages plus tips, and she already received the tips. The discrepancy is probably due to the tips she actually received being different from the tips that the servers entered into the system. People don't like paying taxes, and therefore servers underrepresent their tips. In other words, if I, as a server, received $100 in tips, my incentive is to only enter $50 into the system so I don't pay taxes on that income. It's not legal, but it's a thing that happens A LOT. Most modern point of sale systems automatically capture the credit card tips, so servers tend to not claim any cash tips. At the end of the day, however, those cash tips do get captured for purposes of paying out hostesses and other staff that get a cut of the servers' tips. Link to comment Share on other sites More sharing options...
tshile Posted June 21, 2019 Share Posted June 21, 2019 Just to add, about the industry in general, the paycheck has to account for withholding taxes from the cash tips (which you already received, but no one withheld taxes on.) This leads to underreporting of cash tips. When I worked as a waiter I frequently received 0$ paychecks because the taxes from my tips outweighed what my hourly pay could cover. If not careful, this will lead to unexpectedly owing come tax filing time. The thing to remember about this business is that your credit worthiness is related to your reported earning. So when I started it was common advice that you could 'get away with' not accurately reporting your tips. The problem is that when you go to apply for anything related to your earnings (loan for a car, lease on an apartment, whatever) they can only evaluate you on what your reported earnings are... You can't say "but I also make X$ a month that I just don't report". Doesn't work that way. So I chose to report everything, and it basically meant my paychecks were 0$. Or like $8.25, for an entire week. It was a running joke on pay day. (this was the way things were 15 years ago when I was a waiter, so maybe things have changed) ((ugh i'm so old )) Link to comment Share on other sites More sharing options...
PeterMP Posted June 21, 2019 Share Posted June 21, 2019 10 minutes ago, tshile said: The thing to remember about this business is that your credit worthiness is related to your reported earning. So when I started it was common advice that you could 'get away with' not accurately reporting your tips. The problem is that when you go to apply for anything related to your earnings (loan for a car, lease on an apartment, whatever) they can only evaluate you on what your reported earnings are... You can't say "but I also make X$ a month that I just don't report". Doesn't work that way. Not sure it matters for somebody this age, but the same is true for workman comp claims. I knew a waitress that was working/making enough to support a child. She got hurt at work and ended up missing work for a month. The workman comp claim paid out based on her reported earnings not her actual earnings. She had to go a month making about 25% of what she was really making. Link to comment Share on other sites More sharing options...
Grumpy Vet Posted June 21, 2019 Author Share Posted June 21, 2019 I'd like to thank you all for taking the time to reply. I had an idea on some of that but wanted to clarify before trying to explain it to my daughter. It makes sense. The real world impact of under reporting is interesting too. It probably doesn't have much impact on someone just turning 16 but if she chooses to become a server when she's older those are good tips to be aware of. I think on the first paycheck we will sit tight as the discrepancy isn't huge. As some of you have said, it may be a timing issue with reporting. If things are still wonky after a few weeks, I'll encourage her to approach the chef/owner respectfully and ask for clarification. The main reason I'm trying to understand this is to figure out a rough average hourly rate. She is saving up for a car. In Maryland you can't drive alone until you have so many practice hours, a completed driver's ed course, a passed test and are at least 16 years and nine months. I'm encouraging her to understand how many shifts she would need to work to cover the cost of a car and what kind of car she can afford based on how much she makes on average. We are probably going to get a small loan. We split a down payment with her and then split the monthly payment. I really think it is important for her to be involved in budgeting to see what she can afford and having some skin in the game on this first car. With a decent down payment the monthly payments aren't too bad. It is the insurance that sucks. But I digress. Thanks again to all for the input. Link to comment Share on other sites More sharing options...
PleaseBlitz Posted June 21, 2019 Share Posted June 21, 2019 57 minutes ago, PeterMP said: Not sure it matters for somebody this age, but the same is true for workman comp claims. I knew a waitress that was working/making enough to support a child. She got hurt at work and ended up missing work for a month. The workman comp claim paid out based on her reported earnings not her actual earnings. She had to go a month making about 25% of what she was really making. Also a huge issue for self-employed business owners, who tend to aggressively depreciate their business assets in order to lower their taxable adjusted gross income in order to pay less in taxes. Then they go to buy a home and they have to get qualified based on their reported income. This is one of the primary areas that I practice law in. Link to comment Share on other sites More sharing options...
BatteredFanSyndrome Posted June 21, 2019 Share Posted June 21, 2019 1 hour ago, PleaseBlitz said: Also a huge issue for self-employed business owners, who tend to aggressively depreciate their business assets in order to lower their taxable adjusted gross income in order to pay less in taxes. Then they go to buy a home and they have to get qualified based on their reported income. This is one of the primary areas that I practice law in. Welcome to my life. I finance aircraft loans. Pilots are notoriously cheap and always finding ways to beat Uncle Sam. Then want to get all huffy puffy when told they don't have enough income to support financing. Link to comment Share on other sites More sharing options...
PleaseBlitz Posted June 21, 2019 Share Posted June 21, 2019 32 minutes ago, BatteredFanSyndrome said: Welcome to my life. I finance aircraft loans. Pilots are notoriously cheap and always finding ways to beat Uncle Sam. Then want to get all huffy puffy when told they don't have enough income to support financing. Charge them way more and call them "sub-prime" loans. Link to comment Share on other sites More sharing options...
BatteredFanSyndrome Posted June 21, 2019 Share Posted June 21, 2019 6 minutes ago, PleaseBlitz said: Charge them way more and call them "sub-prime" loans. Well i did used to work in mortgage.... Link to comment Share on other sites More sharing options...
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