If you are working in QuickBooks Online for a client who provides services, such as a hair salon or a caterer, you may be aware there is a Tips (Gratuity) feature that can be enabled. It is turned on by selecting Account and Settings > Sales > Sales form content and then toggling on the feature.
After it is enabled, you are asked to specify if the tips are for just you (as the business owner, in which case the tips will be income), or if they are for the team (in which case the tips will be a liability).
The user can specify or edit the account that results from this choice in Account and Settings > Advanced > Chart of Accounts.
I have found this feature to be rather “toothless,” as there is lots it cannot do.
One issue is that the QuickBooks Online’s Gratuities feature cannot track tips for different employees. Another issue is these gratuities only can be added to sales receipts and not invoices or other sales forms. As you will see, a workaround is definitely in order.
Different Employees
All the gratuities are in one Other Current Liabilities account called Undistributed Tips (or another account if you have chosen something else), but QuickBooks does not allow you to identify who should ultimately receive the funds.
In the sales receipt for New Year’s Eve catering above, we see that the customer gave a $1,500 tip to the wait staff, but there is no way to specify who was working on New Year’s Eve. And the Balance Sheet is no help here:
Sales receipts only
Using the Gratuities feature, there is no way to invoice the customer and set a tip on the invoice (or, in the infrequent case of giving money back to customers, credit memos or refund receipts).
Unlike the sales receipt template, the invoice template does not have a place to add a tip in the footer:
What to do instead?
Because this feature does not do everything we would expect it to do, I have had to dispense with using it altogether and use a MacGyver-esque workaround.
First, I create a separate service item for each person who might receive a tip, mapping it to the Undistributed Tips liability account. Make it a two-sided item that is mapped to the Undistributed Tips account whether it is involved in a purchase or a sale:
In fact, for the sake of neatness, I created a Product Category for all these tips:
Second, I added the tip service items as needed to the body of each sales form, such as a sales receipt or an invoice. This allows for multiple people to get their tips recorded on the sales form.
How do we pay out the tips?
We can run a Balance Sheet for the period for which we are distributing tips and take note of the balance in the Undistributed Tips account:
Then we can run a Sales by Product/Service Summary for the same period to confirm the total and see the breakdown by person:
Then, create a bill for each person, specifying the tips service item for that individual in the Item details grid, dated the same ending date as the reports (in this case, Dec. 31, 2021). I am suggesting a bill rather than an expense or check, because the latter two will likely be dated in a following period and will skew the reports:
The bills can be paid normally at whatever schedule is appropriate, as is the case with bills from other vendors of this company.
The Balance Sheet now shows 0 in Undistributed Tips:
And you can confirm who was getting what tips by running the Purchases by Product/Service Detail report for the same period:
I am waiting for a day when QuickBooks Online tracks gratuities fully, so that we will not have to employ this MacGyver-esque workaround.
Esther Friedberg Karp is an internationally-renowned trainer, writer and speaker from Toronto, where she runs her QuickBooks consulting practice, EFK CompuBooks Inc. Consistently in Insightful Accountant's Top 100 ProAdvisors, she has been named to the Top 10 twice.
A ProAdvisor in three countries, she has traveled the world with Intuit, spoken at QuickBooks Connect in San Jose and Toronto, among other places, and has written countless articles for Intuit Global.
Esther has been named one of the “Top 50 Women in Accounting,” a “Top 10 Influencer” in the Canadian Bookkeeping World, and is a repeat nominee for the “RBC Canadian Women’s Entrepreneur Awards.” She counts among her clients many international companies, as well as accounting professionals seeking her out on behalf of their own clients for her expertise in multi-currency and various countries’ editions of QuickBooks Desktop and Online.