How to Track Tips Correctly Across Your Restaurant’s POS and Payroll
If you run a restaurant, bar or brewery, chances are your POS and payroll systems were set up to be integrated or connected. You were probably told by the vendor that your tip data will automatically flow through from your POS to your payroll system with no extra work needed. But if you’ve ever had to adjust a paycheck because someone’s tips didn’t add up, you already know that tracking tips across POS and payroll is different in real life.
The truth is that tip data rarely transfers perfectly between systems. Numbers get rounded, reports don’t match, and what’s labeled as tips in your POS might be lumped under wages in payroll. When this disconnect happens, you risk overpaying or underpaying your team and reporting the wrong amounts to the IRS.
At U-Nique Accounting, we work with restaurant owners everyday and reconciling tips across POS and payroll systems is something we see all the time. Let’s break down how this happens and how to fix it before it turns into a compliance headache for your restaurant.
How Tips Flow From POS To Payroll
Every dollar of tip income starts at your POS, that’s where employees record what they’ve earned from each shift. The POS should track voluntary tips (like those left on credit card slips), automatic gratuities and service charges separately. But when that data moves into your payroll software, things often get messy.
Some payroll systems combine all those payments into one “tips” bucket. Others might import only a portion of the data depending on how the integration is set up. So even if your POS reports look perfect, your payroll reports may not reflect the same totals.
For example, if your POS shows $10,000 in tips for a pay period, but your payroll report shows $9,600, that $400 difference isn’t just a small rounding error. It means the data between your systems isn’t fully aligned, and you could be misreporting wages and taxes without realizing it.
Why Your Tip Reports Don’t Match
There are a few common reasons this mismatch happens.
It could be a matter of systems using different definitions. Your POS might treat a tip added by a customer as one type of income, while your payroll system uses a different classification. For instance, some payroll systems will label automatic gratuities as “tips” even though the IRS considers them wages.
Then there’s also the issue of timing. Your POS records sales in real time, while payroll runs on fixed pay periods. If your pay cycle cuts off midweek, tips from the last few shifts might fall into the next payroll, which throws off your totals.
Finally, manual adjustments can sometimes cause confusion. Let’s say a manager corrected a missed entry or redistributed pooled tips in the POS, that edit needs to be made in both your POS and payroll systems, otherwise your reports won’t match up.
How To Reconcile Tips Between Your POS And Payroll
Here’s how you can get your reports back in sync.
First, start by running matching reports from both systems. From your POS, pull the “Employee Tip Summary” or “Gratuity Detail” report. From your payroll provider, download the “Earnings Detail” or “Taxable Tips” report. Compare the totals for each employee and pay period and look for gaps.
Next, check how your systems are mapped (they do not default to doing it correctly!). Your accountant or bookkeeper can help you confirm that tip income flows into the right general ledger accounts and that service charges aren’t being lumped under wages.
If your POS doesn’t already separate voluntary tips from automatic service charges, this is a good time to fix that. It’s not just for your records, it’s required for compliance. The IRS treats the two differently, and with the new 2025 tax laws in place, misclassifying them could create problems for both you and your employees.
Finally, it’s good practice to make reconciliation part of your regular payroll routine, instead of waiting for quarterly or year-end reviews. A quick cross-check after every pay run will help you spot if something doesn’t add up, it’s much easier to correct before the next cycle.
Why Accurate Tip Tracking Matters More In 2025
With the 2025 tax changes, there’s more at stake than ever before. Employees can now deduct a portion of their reported tips from taxable income, but only if those tips are correctly classified and reported.
We’ve covered it in detail in this blog: 2025 Restaurant Tip Law Changes Explained (And How to Stay Compliant)
For employers, this also ties directly into the Form 8846 FICA Tip Credit, which lets you recover part of the Social Security and Medicare taxes you pay on employee tips. But you can only claim it if your records clearly separate voluntary tips from service charges. If your payroll system misclassifies them, you could be claiming a credit you don’t actually qualify for or leaving money on the table.
While it might seem like a small back-office issue, it’s actually not because getting your POS and payroll aligned affects your tax savings, your employees’ deductions and your compliance record.
How U-Nique Accounting Helps Restaurants Stay On Track
At U-Nique Accounting, we specialize in helping restaurants, bars and breweries clean up and automate their financial systems. Using Xero, we connect your POS, payroll and accounting data so that every dollar of tip income lands exactly where it should.
We’ll make sure your voluntary tips, service charges, and payroll taxes are properly mapped and fully compliant with the new 2025 reporting rules. More importantly, you can be assured that you’re not missing out on any FICA credits.
If you’re tired of reconciling tip data by hand or correcting payroll errors every pay period, it might be time for a setup that actually works the way it should.
Book a free discovery call with our team today, and let’s make sure your systems are truly in sync.
Until next time!
By MATT CIANCIARULO
