Iowa Tip Laws and Requirements
Iowa's tip laws, updated in 2021 to align with federal regulations, generally follow the Fair Labor Standards Act (FLSA) but allow employers to claim a 40% tip credit against minimum wage, require newly hired employees under 20 to receive at least $6.35 per hour in cash wages, and recognize that tips are the property of employees, with tip pooling permitted but not capped.
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 include 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 difference 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 Iowa.
When Were the Tip Laws Last Updated in Iowa?
Tip laws were updated in 2021 in Iowa in alignment with changes to federal regulations.
Does Iowa Have Tip Laws That Differ from Federal Tip Laws?
Iowa generally defers to federal law regarding tips with the exception of the tip credit amount (employers can claim a 40% tip credit). However, newly hired employees under age 20 must be paid at least $6.35 per hour in cash wages.
Who Holds the Ownership of Tips in Iowa?
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 Iowa?
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 Iowa?
Iowa follows federal law, which allows employers to create mandatory tip pools. The funds must be redistributed to eligible employees during the same pay period.
Who Can and Can’t Participate in Tip Pools in Iowa?
Tipped employees can participate in tip pools. Supervisors, managers, and owners/employers may not.
Is there a Difference Between Tips and Service Charges in Iowa?
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 Iowa?
Yes, employers are allowed to reduce an employee’s tip by the amount of a credit card processing fee.
Do Tips Count Toward the Minimum Wage in Iowa?
Yes, the tip credit can count toward minimum wage.
Do Tips Factor Into Regular Rate Calculations for Overtime Pay in Iowa?
No, tips don’t factor into rate calculations for overtime pay. Any eligible employee working over 40 hours in a week should receive overtime pay (1.5 times their normal hourly wage), and the employer can’t include the tip credit in that calculation.
Are There Cities and Municipalities in Iowa 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 Iowa?
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 Iowa?
An employee may take legal action against an employer who violates state tip laws.
What are the Penalties for Employers for Not Complying with Iowa Tip Laws?
Violating Iowa tip laws can subject an employer to a civil penalty of up to $10,000. Employees may also be permitted to recover the unpaid wages in damages.
Related
Oklahoma Tip Laws and Requirements
Oklahoma's tip laws, last updated in April 2021 to align with federal changes, allow employers to take a tip credit of up to 50% of the minimum wage for tipped employees who earn at least $20 per month in tips, while adhering to the Fair Labor Standards Act's regulations that only permit tip credits for hours worked in tipped occupations and require tipped workers to be paid at least $2.13 per hour, with tips being the property of the employees and tip pooling allowed among eligible employees.
New Mexico Tip Laws and Requirements
New Mexico's tip laws, updated in 2023 to reflect a higher statewide minimum wage, allow employers to take a tip credit differing from the federal standard under the FLSA—which mandates a $2.13 hourly wage for tipped employees and permits tip pooling—but require adherence to state-specific rates and regulations regarding tip ownership and credit application, especially considering the reinstated original dual jobs rule limiting tip credit to hours worked in tipped occupations.
Montana Tip Laws and Requirements
Montana's tip laws, updated in 2021, differ from federal FLSA regulations by prohibiting employers from using a tip credit and requiring payment of the full state minimum wage—which is higher than the federal rate—to tipped employees, who retain ownership of their gratuities.
Wyoming Tip Laws and Requirements
Wyoming adheres to federal Fair Labor Standards Act (FLSA) tip laws last updated in 2013, which allow employers to take a tip credit against minimum wage only for hours worked in tipped occupations, require tipped employees to be paid at least $2.13 per hour plus tips, recognize that tips belong to employees and cannot be confiscated by employers, and permit tip pooling among eligible employees without federal limits on contribution amounts.
South Carolina Tip Laws and Requirements
South Carolina adheres to federal Fair Labor Standards Act (FLSA) tip laws, which regulate tipped employees' wages, allow employers to take a tip credit against minimum wage only for hours worked in tipped occupations, mandate a minimum cash wage of $2.13 per hour for tipped workers, permit tip pooling among eligible employees without limits on contributions, and recognize that tips are the property of employees, with the state's tip laws last updated in September 2021 and no deviations from federal standards.
New Hampshire Tip Laws and Requirements
New Hampshire's tip laws, updated in September 2023, differ from federal FLSA regulations by requiring employers to pay tipped employees a base wage of at least 45% of the minimum wage plus at least $30 per week in tips, while federal law allows employers to take a tip credit against minimum wage obligations only for hours worked in tipped occupations and mandates a minimum cash wage of $2.13 per hour.