In general, all employers in Indiana with two or more workers need to be compliant with the Fair Labor Standards Act (FLSA) guidelines on minimum wage to avoid lawful violations. Under the FLSA laws, hourly workers in the state cannot be paid a lower state minimum wage than the federal wage.
Indiana is one of the 21 states which pay its workers the same minimum wage as the federal allocated wage rate at $7.25 per hour. Currently, there’s an ongoing bill to push the minimum wage higher to $15 per hour, which has equally been met with some opposition.
However, it can get more complicated if an establishment has employees earning tips as they are protected by the federal and state labor laws. A tipped employee is someone who works in a job such as a bartender or a waiter and who normally earns more than $30 per month in tips.
This is a simple guideline for Indiana employers to make sure they effectively administer the set state and federal minimum wage rules for tipped employees.
Indiana State Minimum Wage vs. Wages for Tipped Employees
State Minimum Wage
Indiana maintains the state minimum wage as that of the federal minimum wage of $7.25 per hour, which was adjusted upwards since 2009. Tipped employees are an exception from the Indiana minimum wage as employers need to pay combined cash and tip minimum wage rate towards the federal $7.25 per hour rate.
Under federal law, all wages for tipped and non-tipped employees must not undercut the federal minimum rate. While employers can set any minimum tipped wage for tipped workers as low as $2.13 per hour, if the combined wages and tips are less than the federal minimum wage of $7.25 per hour, they must pay extra wages to meet the difference.
Tipped Employee Wages
Employees who receive regular tips are entitled to a federal minimum hourly wage of $ 2.13 per hour, which exempts them from the regular minimum wage. However, the law allows Indiana employers to claim a tip credit to meet the federal minimum wage standards.
The tip credit usually applies if the employer pays its tipped employees a lower wage (minimum cash wage) than the federal minimum wage. The goal is to ensure employers at the very least match the federal minimum wage or can exceed it. So, Indiana employers can claim a tip credit of up to $5.12, which, when added to the minimum tipped wage of $2.13, reaches $7.25 per hour. As a whole, every state is allowed to set its own minimum wage, tipped minimum wage, and maximum tip credit.
According to the FLSA, the employer still needs to meet some requirements to claim the credit. The employer is required to notify tipped employees on the following:
- The hourly wage to pay them, which should be a minimum of $2.13 per hour.
- The amount the employer will claim as a tip credit: In Indiana’s case, the employer must not exceed $5.12 per hour, which adds towards the federal minimum wage.
- The tip credit to claim cannot exceed the number of tips earned by the tipped employee.
- Unless there’s a valid tip pool, the tipped employee will retain all received tips.
- The credit on tips will apply if the employer informs the employee of the tip credit provisions.
The Next Move For Indiana Employers In 2022
All Indiana employers need to be on the lookout should the current wage rate of $7.25 per hour be cumulatively increased to $15 per hour by 2023. Furthermore, it’s good to be familiar with tipping laws to ensure tipped employees have an easy time when claiming their tip earnings.
If you need to effectively streamline the payroll for your tipped employees when allocating and calculating tips, we have the solution. Working with us will ensure your business consistently meets Indiana’s minimum wage laws without fail. Please contact us today.
