Employment laws, and particularly minimum wage laws in the United States are not that easy to follow, especially when you are looking at the tipped minimum wage, and tipped employees in Iowa.
Workers at restaurants, bars, hotels, cruise ships, and other service providers often expect to be paid a relatively small hourly wage supplemented heavily by tips (gratuities). Many service-industry workers in Iowa base their entire pay on tips and rely on them to cover their living expenses and lifestyle.
So, What is a Tipped Iowa Employee?
A tipped worker in Iowa is somebody who earns their wages through tips rather than a fixed salary or higher hourly rate that meets or exceeds the minimum wage in the state. Federal law establishes the rules of what is considered a tipped employee vs. a non-tipped employee.
In Iowa, if an employee receives more than $30 per month in tips, they are considered to be a tipped employee by federal standards. These employees often include workers such as bartenders, servers in Iowa, some hotel workers (like bellhops and porters), valet car parking attendants, some airport workers, and more. The laws surrounding the definition of an Iowa tipped employee follow the federal guidelines.
Tipped Employees and the Iowa Tipped Minimum Wage
To comply with Iowa minimum wage laws, employers must ensure that when including tips, their employees that are 18 years of age or older are being paid at the very least the state minimum wage rate set for Iowa tipped workers, which is the same as the federal minimum wage and, also known as the Iowa tipped minimum wage for employees. If those employees are not making that minimum pay rate, it is then the employer’s responsibility to make up the difference which is 40% of the regular minimum wage of $7.25 per hour.
There are many factors that contribute to the employment law in Iowa that will impact how employers handle tipped employees. Understanding the standard minimum wage in Iowa, the federal laws controlling wages, and how pay and wages work for tipped employees is pivotal if you are considering starting a service-related business with tipped employees.The grahic below indicates the Iowa tipped minimum wage has not increased over the past serveral years.
The tipped minimum wage in Iowa for 2021 is $4.35 per hour. The regular minimum wage in Iowa in 2021 for those over the age of 18 years old is $7.25 per hour for non-tipped employees. If employees work more than 40-hours per week then some of them are entitled to be paid Iowa overtime pay. This is called “time and a half pay” and is equal to one and a half times (1.5) an employee’s normal hourly wage.
Iowa law requires the Iowa Fair Labor Standards Division to calculate a minimum wage increase each year. The annual calculation is based on the percentage increase in the state’s Consumer Price Index (CPI) previous 12-month period from when the calculation occurs.
Fair Labor Standards Act (FLSA) and Tipped Employees
The Federal Fair Labor Standards Act, also known as the FLSA, is a federal law from the U.S. Department of Labor. This law establishes a national minimum wage, defines classifications for employees, and covers other essential standards and requirements for Iowa employers.
Federal law requires that employers make tipped employees aware of the cash wage paid. They must also let them know about the tip credit, and explain any tip pooling systems at the workplace. Currently, the national direct hourly salary is only $2.13 per hour.
Tip Credits and the Minimum Cash Wage in Iowa
Since the rules for tipped employees are different than non-tipped employees, there are other ways that employers can calculate the minimum amount earned by a tipped employee. One of these ways is through tip credits.
The Iowa tip credit is currently $2.90 per hour (40% of the applicable minimum wage) – this means that employers can claim a $2.90 hourly credit against the tipped employee’s minimum wage. This credit effectively turns the $7.25 minimum wage into a $4.35 per hour minimum wage (60%) that employers must pay to tipped employees no matter how much more they earn in tips.
Let’s assume a tipped employee earned less than $4.35 per hour across a pay period as their tipped wage (the minimum cash wage). In that case, the employer must pay the difference between what they made and the total of $7.25 per hour – up to 40% of the regular minimum wage, which is the tipped credit.
A minimum cash wage ensures that Iowa tipped employees earn a wage, even if a slow workweek or other downturn occurs and they do not receive sufficient tips in a certain week or pay period. This minimum wage rate ensures that servers and others in tipped roles in Iowa that do not make enough with tips can still earn at least a weekly wage when working full-time of $290 ($7.25 x 40 hours).
Alternatively, some tipped employees in Iowa will work more than 40 hours per week, especially if they are covering shifts for other employees, and may qualify for overtime pay.
How Does This Affect My Business?
If you are planning to start (or purchase) a new small business in Iowa due to the fantastic opportunities presented by the Hawkeye State, or simply considering Iowa as a place to live and work due to the tremendous quality of life on offer, you should certainly take this information about tipped employees and the state minimum wage into account.
While you may want to speak with an employment attorney or accounting firm for legal and tax advice about your business, understanding the minimum wage laws for tipped employees can help you make an informed decision whether or not the state is right for you and your future plans.
In Iowa, much the same as most other U.S. states, tipped jobs and the industries surrounding them are very important to the state’s economy. Today there are just over 6,200 eating and drinking establishments in Iowa, and there are more than 152,000 restaurant and food service jobs in the state.
If you have a claim related to employment, you can find out more information on the Iowa Division of Labor website. You can also file a complaint if you feel you are not being paid the correct minimum wage or overtime rate.
Iowa Division of Labor
150 Des Moines Street
Des Moines, IA 50309-1836