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Understanding wages paid to tipped employees

On Behalf of | Sep 15, 2022 | Wage & Hour Laws

Employers must pay workers a minimum wage, and each state determines what this amount is. However, in some states, the hourly wage for tipped employees is different than the minimum wage.

If you work a job that depends on tips, such as a server or bartender, you need to understand laws related to your wages so that you receive fair compensation from your employer.

Minimum wage for tipped employees

Although the minimum wage in Indiana is $7.25, the Indiana Department of Labor discusses that the state allows a base hourly wage for tipped employees, and this hourly amount is $2.13.  A tipped employee is someone who regularly receives tips for performing a job, and the tip amount is at least $30 a month.

Information about tip credits

Although tipped employees receive $2.13/hour paid by their employers, they still must earn the state minimum wage of $7.25 an hour after the addition of tips. If tips plus the base hourly wage do not equal $7.25 for each hour worked, the employer must pay the difference. The tips used to make up the difference between base and minimum hourly wage is tip credit. If the base hourly wage plus tips equals more than minimum wage, the employer does not owe the employee any additional amount.

Laws regarding pooling tips

Tip pooling is when all tipped employees combine their earned tips and then the employer fairly distributes them to all participants. According to the Department of Labor, the employer may not keep any of the pooling tips, and an employer must distribute them within the current pay period.

Although managers and supervisors may not keep any portion of tips earned by employees, they can keep any tips earned by performing a job directly for a customer.

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