Controlled tips are defined as tips that are payable to the employees on their next pay date, such as credit card tips. Recording these tips in the General Ledger can be confusing for business owners since these funds are deposited into the company bank account but are owed to the employees. Since the funds do not belong the the restaurant, the deposit should be be accounted for as a liability for the restaurant.
To account for credit card tips with your Xero integration, please follow the steps below:
Step 1: Create a Tips Payable account in your Xero Chart of Accounts. To create this account in Xero, click "Settings" and then "Chart of Accounts."
Step 2: Click "Add Account." Under Account Type, select "Current Liability." Add an account code and name (we suggest naming the account Tips Payable or Tips Clearing account), then click "Save." When credit card tip monies come into your bank account from the credit card company, allocate these tips to the Tips Payable Account.
Step 3: Inside of OnPay, navigate to the settings menu, then payroll integrations. Next, assign the account you created to the Controlled Tips Clearing Account.
Going forward your controlled tips that were recorded under "Tips Payable" will be offset in your Xero Chart of Accounts with each payroll. If you need to send a previously completed payroll to Xero, please follow the directions found here.
Note: If your company does not break the credit card tips out from the income account when the monies come into your bank account, please leave the Controlled Tips Clearing Account blank inside of OnPay. The income account will be offset by a Controlled Tips wage expense item.