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.
With Square Shifts, you can also require your team members to declare cash tips when clocking out or switching jobs on the Team App or at your shared point of sale. This setting can be enabled from the Shifts tab of your online Square Dashboard. When running payroll, you’ll be able to import cash tips directly into your pay run.
Note: Payroll users have access to tip tracking from the free version of Square Shifts as a part of your subscription. Tip pooling and cash tip tracking are features that require a subscription to Shifts Plus or Team Plus. Learn more about Square Shifts pricing and features.
Eligibility for including your team members in the tip pool is based on their assigned job titles, not per individual team member. You can edit tip eligibility from a team member’s profile in both the Payroll Team and the Team Member List sections of your online Square Dashboard.
When creating a new job, you can toggle on tip eligibility for all team members with that job. If you disable tip eligibility for one team member with a specific job, all team members with the same job title will no longer be eligible for tips when you run payroll.
For example, you have three team members with the job title “Barista.” If you go to one team member’s profile and uncheck This job can earn tips within the Compensation section, then all team members with the “Barista” job title will be excluded from earning tips when you run payroll.
Read more about adding employees to Square Payroll.
Note: Employers, managers, and supervisors may be ineligible to participate in tip pools per tip regulations. You should consult federal and local government websites and qualified counsel to help you with your compliance obligations.
Tip Distribution Methods
Pool tips per transaction
When you select Pool tips per transaction as your tip importing method, credit card tips are pooled and split across all eligible employees that are clocked in when the tip transaction occurred at your point of sale. If you have multiple locations, the tips will also be split by location.
For example, say you have six employees clocked in, but only five are eligible for tip pooling. If a customer tips $10 on a transaction, each of the five eligible employees will receive $2 on their paycheck for that transaction.
Note: This feature requires the use of Square Timecards and Square for payment processing.
Pay tips directly
When you select Tip directly as your tip importing method, credit card tips are paid directly to the employee that processed the transaction and collected the tip. This feature requires the use of Square Shifts.
Note: To use this tip import method with Square Payroll, you will need to assign your team members a passcode and ensure they use their passcode to track their individual sales.
Pool tips by hours worked
When you select Pool tips by hours worked as your tip importing method, credit card tips from sales are split among tip-eligible team members based on their total hours worked. You can specify to split tips based on a 24-hour workday or across a 7-day workweek. Splitting tips by workday works best if you want to reward team members who may not work their entire shift interacting with customers; splitting tips across a workweek better accounts for tip variability across a wider time frame.
Note: Meal and rest breaks are included in calculating hours worked for the purpose of splitting tips by this method.
Tip Payout Methods
You can set your team’s tip payout method to either Paycheck or Cash:
Paycheck: Includes the tip amount in your eligible employees’ net pay total on their paycheck. Tips will be taxed as a part of their earned income. Choose this option if you want to pay out the tips via payroll. When you run payroll, these tips will populate in the Paycheck Tips column.
Cash: Records the tip amount on your employee’s pay stub and withholds taxes from their earned tips but does not include the tip amount in their net pay total on their paycheck. Choose this option if you pay out tips in cash outside of payroll. When you run payroll, these tips will populate in the the Cash Tips column.
Enable Tip Importing
To enable tip importing on your payroll account:
Sign in to the Settings tab of your online Square Payroll dashboard.
Toggle on Enable Tip Importing.
Select the Payout method.
Confirm your Distribution method. This defaults to Tip directly, but you can edit it at any time by clicking Manage.
If applicable, toggle on Declare cash tips to require your team to record cash tips on the Team App or at your point of sale when clocking out or switching jobs.
Make sure you have the correct tip distribution method set within the Shifts section of your online Square Dashboard. We recommend setting an effective date to make sure any tip distribution method changes at the start of your pay period.
To choose your tip distribution method:
Sign in to Shifts in your online Square Dashboard and click Settings > Tips.
Select your tip distribution method, either Tip directly, Pool tips per transaction, or Pool tips by hours worked. Note: If pooling tips by hours worked, you must select to pool tips within a 24-hour workday or across a 7-day workweek.
Choose to apply your settings to Only this location or All locations, and choose an effective date. Note: The effective date can be up to two weeks in the past.
After enabling tip importing, run payroll as usual and click Import time and wages. If you are using Commission Importing with Square Payroll, your team's commission wages will also be imported into your payroll run.
After importing timecards and tips, you can make edits to hours and tips but be sure to review the amounts in your pay run. If you need to make any edits:
Go to Shifts to view your team’s timecards. If you edit any timecards, tips will automatically be recalculated and redistributed.
Go back to your online Square Payroll dashboard and hit Import time and wages in your payroll run again to ensure you see the latest amounts reflected in your pay run.
Manual Tip Entry
You can also manually input your employees tips when processing payroll. Click the (+) icon to the right of Gross Pay to add the appropriate pay types:
Cash Tips: The amount of tips already paid out to your employees in cash. 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: The amount of tips you want to pay to your employee(s) for the pay period. This amount will be paid to your employee(s) through Square Payroll.
Square Payroll currently supports tip importing by pooling and splitting tips by transaction or paying the tips directly to the team member who collected the tip. If you are pooling and splitting tips through another method, you can also manually enter these when processing payroll. At this time, Square Payroll does not support the following tip importing features or methods:
Deducting credit card processing fees from tips
Auto-gratuity with Square for Restaurants
Importing tips for salaried team members that do not use timecards
Contractor tip importing
Note: Employers processing payroll on a semi-monthly or monthly basis cannot pool tips by hours worked in a workweek.