Indiana Tip Laws

Under the Fair Labor Standards Act (FLSA), tips are regulated. Employers who meet certain criteria are permitted to take a partial credit against minimum wage obligations for tipped employees. Tipped employees includes those engaged in jobs in which they regularly and customarily receive tips.

The tip credit was created by Congress in 1966, and adjustments occurred on December 28, 2021, when the 2021 Dual Jobs Final Rule went into effect. A federal court vacated portions of the final rule in October 2024, which effectively reinstated the original dual jobs regulation (29 C.F.R.531.56(e). It recognizes that an employee may work in tipped and non-tipped occupations, and employers are only permitted to take the tip credit against minimum wage obligations for hours worked in the tipped occupation.

The FLSA mandates that a tipped worker must be paid at least $2.13 per hour. The FLSA tip credit can be equal to the different between the direct (or cash) wage paid to the employee and the federal minimum wage. Only tips actually received by an employee count when making the determination of a tipped employee and applying the credit.

The FLSA also permits employees to “pool” or share tips with other eligible employees, although it doesn’t impose a limit on the amount or percentage of the contribution of each employee in a valid tip pool.

State law may differ from the federal FLSA standards. Review what tip laws apply in Indiana.

When Were the Tip Laws Last Updated in Indiana?

Tip laws were updated in Indiana in July of 2024.

Does Indiana Have Tip Laws That Differ from Federal Tip Laws?

No, Idaho defers to federal law regarding tips. Employers may take a tip credit of up to $5.12 as long as the tipped employee’s minimum hourly wage is the federal rate.

Who Holds the Ownership of Tips in Indiana?

Under federal law, any gratuities paid to employees are their property. Employers are not permitted to require employees to hand in their tips, although they are allowed to count the tip toward the hourly rate.

What are the Rules for Distribution of Credit Card Processing Tips in Indiana?

Federal law states that all tips paid by credit card must be issued to employees no later than the next regular payday, even if the employer is awaiting reimbursement from the financial provider.

What are the Tip Pooling Rules in Indiana?

Indiana follows federal law, which allows employers to create mandatory tip pools. Only employees who regularly receive tips are permitted to be in the pool.

Who Can and Can’t Participate in Tip Pools in Indiana?

Tipped employees can participate in tip pools. Supervisors, managers, and owners/employers may not.

Is there a Difference Between Tips and Service Charges in Indiana?

Yes, a mandatory service charge is not considered a tip. Therefore, it would belong to the employer.

To be considered a tip instead of a service charge, a customer must give money voluntarily in an amount of their own choosing. The customer must also be able to determine who receives it, and it can’t be set by employer policy.

Can Employers Deduct Credit Card Fees from Tips in Indiana?

There is no law restricting employers from deducting any credit card processing fees from employee tips.

Do Tips Count Toward the Minimum Wage in Indiana?

Yes, the tip credit can count toward minimum wage.

Do Tips Factor Into Regular Rate Calculations for Overtime Pay in Indiana?

Any eligible employee working over 40 hours in a week should receive overtime pay (1.5 times their normal hourly wage). Indiana employers are permitted to use the tip credit on overtime pay.

Are There Cities and Municipalities in Indiana That Have Their Own Tip and Service Charge Rules That Differ from Statewide Laws?

No, there are currently no cities or municipalities with differing tip or service charge rules.

What Are the Record-Keeping Requirements for Employers Regarding Tips in Indiana?

Employers must keep detailed records of all tips reported by employees, including amounts and dates of service. If tip pooling is in effect, the record should also include the arrangements and the distribution of tips to eligible staff members.

What Options Do Employees Have for Remuneration if Their Tips are Withheld in Indiana?

An employee may take legal action against an employer who violates state tip laws.

What are the Penalties for Employers for Not Complying with Indiana Tip Laws?

Knowingly violating Indiana tip laws can subject an employer to a penalty between $5,000 (minimum) and $70,000 (maximum). Repeat violations can result in a fine of $70,000 per incident. Failing to correct the violation subjects the employer to daily fines. Employees may also be permitted to recover unpaid wages in damages.

Managing the regulations associated with tips in Indiana can be a challenge. But with WorkforceHub, your business can ensure accuracy. The numerical clock prompt feature allows the employee to input their received tips at the end of the shift, and that information would be available for reporting and payroll processing. Explore our selection of time clocks to find what works for your business.