Earning tips as part of your hourly wage complicates things a bit. Under federal law, tips are the property of the employee and not the employer. There are federal and state laws that define what a tip is and whether or not you have to share your tips with other employees.

There are differences between how federal and state laws cover these issues. However, Indiana law permits employers to take tips under two exceptions: tip credits and tip pooling.

What is a tip credit?

Generally, minimum wage laws dictate how much employees earn. while the federal minimum wage for non-tipped employees is $7.25, it is drastically lower for tipped employees.

A tip credit allows employers to pay you less than minimum wage if your hourly earnings are more than $7.25, including tips. The minimum wage for tipped employees is $2.13 per hour. If you do not earn enough in tips, your employer must subsidize your wages to ensure you make at least minimum wage.

What is tip pooling?

Indiana allows employers to use a tip pool to ensure all front-end staff earn minimum wage. If your employer takes a tip credit, you are only required to split your tips with other employees who regularly receive tips. If your employer pays you the full minimum wage, you might have to divide your tips with all other workers. Indiana allows tip pools if:

  • Employees who helped serve the customer are the sole recipients of the tip pool
  • Managers, owners or employers do not receive a portion of the tip pool
  • The money in the pool is fairly divided

If you believe your employer is illegally taking tips or if you have any questions surrounding this issue, consider speaking with a knowledgeable Indiana employment law attorney. They will understand the nuances of Indiana’s regulations on this topic and will be able to guide you through the process.