If your employees earned tips or worked overtime during a pay period, you can add them to payroll yourself in your Collective dashboard. Recording tips and overtime in payroll keeps tax withholding accurate and gives you a clean record for W-2s, which matters at tax time and for the tip and overtime deductions you or your employees may qualify for.
This article is for S Corp tier members who run payroll through Collective. You add tips and overtime per employee while reviewing your regular payroll, before you submit it. If you're on the LLC tier, payroll doesn't apply to you as the business owner, so this process isn't one you'll need.
Paycheck tips or cash tips?
The pay screen has two tip fields. Choosing the right one makes sure tips are taxed correctly and not paid out twice.
| Field | Use it for | What happens |
|---|---|---|
| Paycheck tips | Tips your business collected on the employee's behalf (for example, card tips) that you're paying out through their paycheck | Added to the employee's pay and taxed |
| Cash tips | Tips the employee already took home in cash | Reported so the right taxes are withheld, but not paid out again |
If you're not sure which type applies, reach out to your Collective team before you submit.
Add tips to your payroll
- Go to Payroll, then Overview, in your Collective dashboard. This is where your upcoming payrolls are listed.
- On your next payroll, click Review and run. The Review and submit payroll screen opens.
- Click Edit payroll at the bottom left. The Hours and additional earnings screen lists each employee's hours and pay for the period.
- Find the employee who earned tips and click the ⋮ menu on their row. A window opens called Update [name]'s pay.
- Under Additional earnings, enter the tip amounts. Use Paycheck tips for tips you're paying out through payroll and Cash tips for tips the employee already received in cash. You can fill in one or both.
- Check Gross pay at the bottom of the window. It updates as you type, so you can confirm the new total before saving.
- Click Save.
- Repeat steps 4 through 7 for each employee who earned tips this pay period.
- Click Review payroll at the bottom right. Taxes and totals are recalculated with the tips included.
- Review each employee's gross pay and taxes, along with the debit amount at the top of the screen. The Employee take home tab shows what each person will receive.
- Click Submit payroll before the deadline shown at the top of the review screen.
Tips need to be entered before you submit. Once a payroll is submitted, you can't add tips to it.
Add overtime to your payroll
Overtime applies to employees who are eligible for overtime under federal law, usually hourly employees. Overtime is based on hours worked in each workweek, generally hours over 40, so keep a record of each employee's hours week by week, even if you run payroll every two weeks or twice a month.
- Follow steps 1 through 3 above to open the Hours and additional earnings screen.
- Find the employee who worked overtime and click the ⋮ menu on their row. A window opens called Update [name]'s pay.
- Enter their regular hours in Regular hours and their overtime hours in Overtime. Keeping these separate is what lets payroll pay the overtime rate and identify the hours as overtime.
- If your state requires double time in certain situations, enter those hours in Double overtime.
- Check the gross pay at the bottom of the window, then click Save. Payroll applies the overtime rate for you.
- Repeat steps 2 through 5 for each employee who worked overtime, then click Review payroll and submit as described in steps 9 through 11 above.
Overtime needs to be entered before you submit. Once a payroll is submitted, you can't add overtime to it.
Good to know
- Tips and overtime are entered each payroll. Amounts don't carry over from one pay period to the next, so add them every time tips were earned or overtime was worked.
- Only voluntary tips belong in the tip fields. Mandatory service charges and automatic gratuities generally aren't tips, so entering them as tips can overstate tip income on your W-2s. If you charge service fees and aren't sure how to record them, reach out to your Collective team.
- This applies to W-2 employees. Contractors are paid through a separate flow and don't use this screen.
- This covers regular payroll. If you need to add tips to an off-cycle payroll, reach out to your Collective team.
- Made a mistake before submitting? Click Edit payroll again, open the employee's ⋮ menu, update the amount or hours, then click Save and Review payroll.
- Overtime fields only appear for eligible employees. If an employee who should earn overtime doesn't have an Overtime field, their job may be classified as exempt. Reach out to your Collective team to review it.
Next steps
For more on how tip and overtime pay may qualify for a deduction, see No tax on tips and overtime deductions for S Corp owners. If you have questions specific to your business, reach out to your Collective team. They're here to help.
The information contained in this document is provided for informational purposes only and should not be construed as legal, financial, or tax advice.