How does Tips Calculate the Shortfall Allocation for the Hours Worked Method?

In the Hours Worked method of calculating tip shortfall, Payroll determines the shortfall by taking the ratio of hours worked by a tipped employee to the total hours worked by all tipped employees in the allocation level for the same time period and applying it to the total shortfall of tips for the allocation level.

Shortfall Allocation Calculation (TP100) uses the hours worked by tipped employees in tipped jobs that are tracked by Tip Calculation (TP135).

The following table shows the hours worked and direct tips reported by tipped employees for a specified date range:

Directly tipped employees Hours worked in date range specified Direct tips reported
Employee A 180 1,080
Employee B 172 880
Employee C 188 1,810
Employee D 176 800
Employee E 144 450
Employee F 160 680
Totals 1020 5,700

Tips uses the following steps to calculate the shortfall allocation calculation:

  1. Calculates the amount of tip income required from direct tips.

    100,000.00 Allocation level gross receipts
    * .08 Allocation percent
    8,000.00 Tip reporting requirement
    - 500.00 Total indirect tip income
    7,500.00 Income required from direct tips

  2. Multiplies the income required from direct tips for the allocation level by the hours worked ratio to determine the amount that should be reported by each employee. The hours worked ratio is the ratio of hours worked by an individual employee to the total hours worked by all employees in the process level for the same period of time.

    Directly tipped employees Income required from direct tips Hours worked ratio Employees share of tips
    A 7,500 * 180/1020 = 1,324
    B 7,500 * 172/1020 = 1,265
    C 7,500 * 188/1020 = 1,382
    D 7,500 * 176/1020 = 1,294
    E 7,500 * 144/1020 = 1,059
    F 7,500 * 160/1020 = 1,176
    Total 7,500

  3. The program subtracts the direct tips reported by each employee from the calculated amount the employee should have reported, to determine the employee shortfall.

    Directly tipped employees Employee share of tips Direct tips Employee shortfall
    A 1,324 - 1,080 = 244
    B 1,265 - 880 = 385
    C 1,382 - 1,810 = *
    D 1,294 - 800 = 494
    E 1,059 - 450 = 609
    F 1,176 - 680 = 496
    Totals 7,500 5,700 2,228

    *Because employee C reported tips in excess of eight percent, the program does not allocate a shortfall amount.

  4. The program subtracts the direct and indirect tips reported for the allocation level from the tip reporting requirement, to determine the allocatable shortfall for the allocation level.

    8,000.00 Tip reporting requirement
    - 5,700.00 Direct tips reported
    - 500.00 Indirect tips
    1,800.00 Allocatable shortfall

  5. The program multiplies the allocatable shortfall for the allocation level by the shortfall ratio to determine the shortfall allocation for each employee. The shortfall ratio is the ratio of the individual employee shortfall to the allocation level shortfall.

    Shortfall employees Allocatable shortfall Shortfall ratio Shortfall allocation
    A 1,800 * 244/2,228 = 197
    B 1,800 * 385/2,228 = 311
    D 1,800 * 494/2,228 = 399
    E 1,800 * 609/2,228 = 492
    F 1,800 * 496/2,228 = 401
    Total $1,800