How does Tips Calculate the Shortfall Allocation Using Individual Gross Receipts Method?

If you use the Individual Gross Receipts method of calculating tip shortfall, Tips uses the ratio of gross receipts reported by a tipped employee to the total gross receipts for the allocation level for the date range specified.

The following examples illustrate the calculations Payroll uses to determine the shortfall allocation.

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

Directly tipped employees Employee gross receipts for the date range specified Direct tips reported
Employee A 18,000 1,080
Employee B 16,000 880
Employee C 23,000 1,810
Employee D 17,000 800
Employee E 12,000 450
Employee F 14,000 680
Totals 100,000 5,700

Tips uses the following steps to calculate the shortfall allocation.

  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
    Note: The gross receipts ratio is the ratio of each employee's reported gross receipts to the total gross receipts for the allocation level.

  2. Multiplies the income required from direct tips for the allocation level by the gross receipts ratio to determine the amount that should be reported by each employee.

    Directly tipped employees Tip income required from direct tips Gross receipts ratio Employee share of tips
    A 7,500 * 18,000/100,000 = 1,350
    B 7,500 * 16,000/100,000 = 1,200
    C 7,500 * 23,000/100,000 = 1,725
    D 7,500 * 17,000/100,000 = 1,275
    E 7,500 * 12,000/100,000 = 900
    F 7,500 * 14,000/100,000 = 1,050
    Total 7,500

  3. 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's share of tips Direct tips Employee shortfall
    A 1,350 - 1,080 = 270
    B 1,200 - 880 = 320
    C 1,725 - 1,810 = *
    D 1,275 - 800 = 475
    E 900 - 450 = 450
    F 1,050 680 = 370
    Totals 7,500 5,700 1,885

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

  4. 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. 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 * 270/1,885 = 258
    B 1,800 * 320/1,885 = 306
    D 1,800 * 475/1,885 = 453
    E 1,800 * 450/1,885 = 430
    F 1,800 * 370/1,885 = 353
    Total $1,800