Tips, Overtime, and Bonuses: Payroll Rules for MT Employers
Three of the most-messed-up parts of payroll are tips, overtime, and bonuses. Each has federal rules and Montana-specific wrinkles. Here's what matters.
Tips in Montana
Montana is one of a small number of states that does NOT allow a tip credit against minimum wage. Every tipped employee must be paid the full state minimum wage in cash before tips.
Tips still count as taxable wages for federal and state income tax withholding and for FICA. Employees report tips to you monthly on Form 4070 (or equivalent).
Employer FICA on reported tips can be offset by the FICA Tip Credit (Form 8846) on the business tax return — a real tax break most small restaurants miss.
Overtime
Federal FLSA and Montana law both require 1.5x regular rate for hours over 40 in a workweek for non-exempt employees. Montana does NOT require daily overtime (over 8 hours in a day) — only weekly.
'Regular rate' includes non-discretionary bonuses and shift differentials — not just hourly wage. A common mistake is calculating overtime on base rate only.
Exempt (salaried) employees must meet both the salary basis test (currently $684/week federal, $844/week starting 2025 depending on final DOL rules) AND a duties test. Don't assume salary = exempt.
Bonuses
Discretionary bonuses (given at employer's sole discretion, no expectation) don't factor into overtime rate.
Non-discretionary bonuses (production, attendance, tenure) DO factor into overtime rate — you have to recalculate overtime for the workweeks the bonus covers.
Withholding on bonuses can use the flat 22% federal supplemental rate (simplest) or aggregate method.
The most common mistakes
Paying tipped employees less than full Montana minimum wage before tips.
Calculating overtime on base pay only, ignoring shift differentials.
Classifying a $45k salaried employee as exempt without a duties test.
Missing the FICA Tip Credit at year-end.
A quick disclaimer
This article is general information for Montana small business owners, not tax, legal, or accounting advice for your specific situation. Rules change, and how they apply depends on facts we don't know about you. Before acting on anything you read here, talk to a qualified professional. If you're a Montana business owner and want a real conversation about your books, payroll, or tax, that's what Marlow Accounting is here for — call 406-290-1214 or schedule a discovery call.