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Square Payroll Tip Importing

Tip importing automates the process of calculating tips and importing them into payroll.

Square Payroll supports importing credit card tips for W-2 employees. Tips can be pooled and split or paid directly to the employee that collected the tip.

Pool and Split Tips

When Pool and Split Tips is selected, credit card tips are pooled and split among employees based on the number of hours worked in the selected pooling interval (pay period or workday). If you have multiple locations, the tips will also be split across locations. This features requires the use of Square Timecards and Square for payment processing.

If you elect to Pool and Split Tips by workday we recommend reviewing your Start of Workday in the Timecard Settings. A workday will start at the elected time and end 24 hours later.

To enable Tip Importing with pooling and splitting:

  1. Sign in to the Settings tab of your online Square Payroll dashboard.
  2. Toggle Enable Tip Importing on.
  3. Select Pool and Split Tips.
  4. Select a Pooling Interval:
    • Pay Period: Square Payroll will include all tips collected for the entire pay period and split them based on hours worked per employee.
    • Workday: Square Payroll will include all tips collected for a workday and split them based on the employees who have hours for the day.
  5. Click Save.

After enabling tip importing, run payroll as usual and click Import Timecards and Tips.

If Tips are pooled by pay period the tip amount for each employee will be: [(number of hours worked by that employee) / (total number of hours worked by all employees included in the tip pool)] x (total amount of credit card tips received). If Tips are pooled by workday the same calculation will apply by workday rather than pay period.

After importing timecards and tips, you can make edits to hours and tips if needed. Note: If you edit hours after importing timecards and tips, tips will not update. You must edit hours in timecards and re-import timecards after editing for tips to update in Payroll.

Below is an example of a business who has two employees that are included in the tip pool and one employee that is excluded from the tip pool.

  • Employee A, included in the tip pool, worked 10 hours in the pay period.
  • Employee B, included in the tip pool, worked 40 hours in the pay period.
  • Employee C is excluded from the tip pool.

Total hours worked by employees in the tip pool: 50 hours

Your businesses received a total of $100 in credit card tips across all locations in the pay period.

  • Employee A would receive $20 in paycheck tips (10 hours / 50 total hours x $100 in tips)
  • Employee B would receive $80 in paycheck tips (40 hours / 50 total hours x $100 in tips)
  • Employee C would receive $0 in paycheck tips as they are excluded from the tip pool

Credit card tips will be pooled across all locations, split based on hours worked in the pay period and paid out by paycheck.

By default, all employees will be included in the tip pool. To exclude an employee from the tip pool, go to the Payroll Employee’s profile and check the box Exclude this employee from the tip pool and then click Save.

Pay Tips Directly

When Pay Tips Directly is selected, credit card tips are paid directly to the employee who collected the tip. This features requires the use of Team Management to track sales by employee. The use of Timecards is not required.

After enabling tip importing, run payroll as usual and click Import Timecards and Tips.

Tips will be imported into Paycheck Tips or Cash Tips (depending on your selection when setting up the feature). Any timecard hours will also be imported.

After importing timecards and tips, you can make edits to hours and tips if needed.

To enable Tip Importing and pay out tips directly:

  1. Sign in to the Settings tab of your online Square Payroll dashboard.
  2. Toggle Enable Tip Importing on.
  3. Select Pay Tips Directly.
  4. Select the Tip Payout Method. Select Paycheck if you’d like to pay out tips by paycheck. Select Cash if you’ll be paying out tips in cash.
  5. Click Save.

Manual Tip Entry

You can also manually input your employees tips when processing payroll. Square Payroll allows you to declare taxes on both cash tips already paid to your employees and add tips from credit card payments to their paychecks.

  • Cash Tips: Amount in cash tips paid. This amount should already have been paid to your employee and will not be sent in your pay run. Declaring cash tips ensures accurate tax reporting and documentation. Employee taxes will be calculated for these amounts and withheld from the employee’s pay.
  • Paycheck Tips: Tips paid out to your employee(s) for the pay period. This amount will be paid to your employee(s) through Square Payroll.

Note: If you don’t see the fields for reporting tips when processing payroll, click the + icon to the left of the Gross Pay column > enable any columns you need to complete payroll.

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