What's covered in this guide?:
Under the Fair Labor Standards Act (FLSA), employers can pay tipped employees a reduced cash wage (federally, $2.13/hr) and claim a "tip credit" against the federal minimum wage of $7.25/hr — but only if the employee's tips actually bring their total earnings up to the full minimum for the workweek. If tips fall short, the employer has to pay the difference. State minimum wages and tip-credit rules vary, and several states (for example California, Oregon, Washington, Nevada, Montana, Minnesota, Alaska, and Hawaii) don't allow a tip credit at all.
Workforce's Minimum Wage Top-Up handles this calculation for you. When a tipped employee's wages plus tips for a workweek fall below the department's minimum wage, Workforce adds a top-up to the timesheet so the employee is brought up to minimum and the shortfall is paid through payroll.
How the top-up works
The top-up runs as part of timesheet recalculation. For each workweek inside the timesheet, Workforce:
Groups the week's hours by department and only considers hours worked in tip-based departments.
Calculates the wage shortfall — the gap between the department's configured minimum wage and the employee's effective hourly wage on those hours, multiplied by the hours worked.
Subtracts the tips received that week (allowances flagged as Tip or gratuity) from the shortfall.
If anything is left over, adds a Minimum Wage Top-Up (Automated) allowance to the timesheet on the last day of that workweek for the remaining amount.
If wages plus tips already meet or exceed the obligation, nothing is added. Holiday and time-off hours are excluded from the calculation, and only hours in tip-based departments count toward it — non-tipped department hours are ignored entirely.
The top-up also feeds into the regular rate of pay used for overtime. When a tipped employee works overtime in a week that requires top-up, Workforce calculates the regular rate against the full applicable minimum wage rather than the reduced cash wage, so the overtime premium isn't computed against a sub-minimum rate.
How to set it up
Setup happens in three places: the organization-wide setting, each tipped department, and the allowance you use to record tips.
Go to Settings → Timesheet Settings and scroll to the Minimum Wage Compliance section. Tick Enable Minimum Wage Top-Up. This is the master switch — without it, the calculation never runs. The section also has links to "About the Fair Labor Standards Act" and "Sample Calculations" if you want to read the underlying DOL guidance.
Open each department where tipped employees work. In its Minimum Wage Top-Up section, tick This is a tip-based department, then add at least one minimum wage entry with a rate and effective date. You can add multiple entries with different effective dates so the applicable minimum can change over time without losing history — Workforce uses the rate effective on the start date of the timesheet's workweek.
Make sure the allowance you use to record tips has Tip or gratuity checked. This is the flag the calculator uses to identify tips and subtract them from the shortfall.
Tip-based departments are a department-level setting, not an employee flag. If the same employee works tipped shifts in one department and non-tipped shifts in another, assign each shift to the appropriate department and the calculator will handle the rest — only the tipped-department hours will be eligible for top-up.
What the top-up looks like in payroll
The top-up appears on the timesheet as a Minimum Wage Top-Up (Automated) allowance dated to the last day of the workweek that triggered it. From there it flows through to your payroll export alongside the rest of the timesheet's earnings, so no manual adjustment is needed once the setup above is in place.
If an employee is consistently triggering top-ups, that's a signal their tips aren't sustaining the tip credit. Some states require employers to pay the full minimum cash wage in this situation rather than relying on a top-up — check your state's tipped-wage rules.