Iowa Minimum Wage: Rate, Tip Credit, and Rules

The first Iowa payroll I ever helped set up belonged to a five-table breakfast diner in Cedar Rapids. The owner had run a similar place in another state and assumed the tipped wage carried over. It does not. Iowa caps the tip credit at 40 percent, and she was about to underpay two servers by $2.22 an hour.

That is the shape of Iowa wage law: the headline number is the least interesting part. The rate has been $7.25 since January 1, 2008, and the three rules underneath that flat number are what trip owners up: a tip credit far tighter than the federal one, a lower rate for a new hire’s first 90 days that federal law narrows, and a $300,000 sales threshold that decides whether the state act reaches you at all.

This page covers the wage floor and nothing else: the rate, the tip credit, local rates, the initial employment wage, the exemptions, the poster, and the payroll steps to run when the rate rises.

The Current Iowa Minimum Wage

Iowa’s minimum wage is $7.25 per hour, effective January 1, 2008. That figure comes from Iowa Code chapter 91D, section 91D.1(1)(a), which sets the state hourly wage in two steps and then stops. The Wage and Child Labor Unit at the Iowa Department of Inspections, Appeals, and Licensing publishes the same $7.25 on its wage information page.

Section 91D.1(1)(b) settles which number an employer actually uses. It requires every employer, as defined in the federal Fair Labor Standards Act (FLSA), to pay the state hourly wage or the current federal minimum wage under 29 U.S.C. section 206, whichever is greater. Both point at $7.25 right now, so the practical answer is one number.

Section 91D.1(6) routes enforcement through Iowa Code chapter 91A, the wage payment collection law. The Wage and Child Labor Unit investigates unpaid wages, illegal deductions, unreimbursed expenses, and agreed wages that an employer lowered unlawfully.

Iowa Administrative Code 481 rule 234.4 requires payroll records to be preserved for at least three years, so a claim filed two years after the fact still lands against records you are obliged to have.

The Next Scheduled Increase

No increase is scheduled. Iowa Code chapter 91D contains no further step and no inflation index, so there is no date to plan around and no automatic annual adjustment of the kind other states run each January.

There is exactly one escalator, and it is not an Iowa one. Section 91D.1(1)(b) requires the greater of the state hourly wage or the current federal minimum wage. If Congress raises the federal floor, Iowa employers owe the higher number from its federal effective date without the Iowa Legislature doing anything.

Tipped Employees and the 40 Percent Tip Credit

Iowa allows a tip credit, but caps it at 40 percent of the applicable minimum wage. Against a $7.25 rate that is a maximum credit of $2.90, leaving a cash wage of at least $4.35 per hour that the employer pays out of its own pocket. The federal cash wage is $2.13. An employer applying the federal figure in Iowa underpays by $2.22 an hour.

The eligibility test is narrower than the federal one, and that catches people. The Iowa credit is written for an employee of a restaurant, hotel, motel, inn, or cabin who customarily and regularly receives more than $30 a month in tips. A tipped worker outside those establishment types does not fit the state definition, and the safe assumption is the full $7.25 cash.

Iowa Administrative Code 481 chapter 233 fills in what counts as a tip. A tip belongs to the person whose service it recognizes. Only tips the employee actually receives and may freely use, without employer control, can be counted. Amounts added to a credit card bill count. Theater tickets, passes, and merchandise do not.

Tip splitting between servers and bussers leaves each amount as the tip of whoever retains it, which is the starting point for any tip pooling arrangement.

The recordkeeping is specific enough to be worth writing into your payroll setup once. For every tipped employee, Iowa Administrative Code 481 rule 234.6 requires a record of the weekly or monthly tips the employee reported to you (IRS Form 4070 is accepted) and of the amount by which wages were deemed increased by tips, which is the tip credit you took, capped at 40 percent.

The same rule requires you to record hours worked and straight-time earnings split between tipped and non-tipped occupations. Without that split, a dual-jobs claim, where an employee says the credit was taken on hours worked in a non-tipped job, is very hard to defend.

City and County Rates in Iowa

There are no city or county minimum wage rates in Iowa, and there cannot be any. Iowa Code section 364.3(12) removes the power from cities and section 331.304(12) removes it from counties, in identical language.

Both sections prohibit adopting, enforcing, or otherwise administering an ordinance, motion, resolution, or amendment providing for any terms or conditions of employment that exceed or conflict with the requirements of federal or state law. In plain words, a city or county cannot require more of an employer than state or federal law does, or anything that contradicts it.

The ban reaches well beyond wages. It names a minimum or living wage rate, any form of employment leave, hiring practices, employment benefits, scheduling practices, and other terms or conditions of employment. Each section then adds the same retroactive clause, voiding any such ordinance adopted before March 30, 2017 on and after that date.

For a small employer, this is a real simplification. A business with sites in two Iowa cities runs one wage floor, one poster, and one set of payroll rules, and a multi-state operator with an Iowa location has one fewer local ordinance calendar to maintain.

The retroactive clause is also a useful tell: any Iowa local wage ordinance you find referenced online was voided in March 2017 and should not be used to set pay.

Exemptions and Industry Carve-Outs

Iowa has no fast food wage, no healthcare wage, and no industry-specific rate of any kind. What it has instead is a coverage threshold, and it is the exemption most likely to matter to a small business.

Under section 91D.1(2)(b), the Iowa minimum wage requirements do not apply to an enterprise whose annual gross volume of sales made or business done, excluding separately stated retail excise taxes, is less than $300,000. Put simply, the test is your yearly revenue.

Section 91D.1(2)(c) then pulls four categories back in regardless of sales volume. The third covers both hospitals and schools, so the table gives it two rows. That is where the healthcare carve-out lives, and it runs the opposite way from the exemptions employers usually expect: hospitals are pulled in, not let out.

Beyond the threshold, section 91D.1(2)(a) adopts the federal exemptions at 29 U.S.C. section 213, and Iowa Administrative Code 481 chapter 230 spells out the ones Iowa applies directly.

Agriculture carries several of those exemptions: an employer that used no more than 500 person-days of agricultural labor in any calendar quarter of the prior year, the employer’s immediate family, local hand-harvest piece-rate workers who commute daily and worked under 13 weeks in agriculture in the prior year, minors aged 16 and under hand-harvesting at the same piece rate on the same farm as a parent, and employees principally engaged in the range production of livestock.

The same chapter exempts seasonal amusement and recreational establishments, organized camps, and religious or nonprofit education conference centers that either operate seven months or less a year or meet a receipts test. It also exempts casual babysitting and in-home companionship service for people unable to care for themselves because of age or infirmity.

Anyone exempted by a certificate of the Secretary of Labor is outside the state rules too, and rule 234.6(2) says federal special minimum wage certificates are honored at the applicable Iowa rate.

Two definitional points sit alongside the exemptions. Section 91D.1(3) says a franchisor is not the employer of a franchisee or of a franchisee’s employees unless it agreed in writing to be, or the department found it exercised control beyond what protecting its trademarks and brand requires. Section 91D.1(4) excludes from the definition of employee the independent contractors described in section 85.61(12)(c)(3): owner-operator truckers who meet a six-condition test.

Neither definition is a license to reclassify: getting worker classification wrong is a wage claim waiting to happen. And one last difference for multi-state operators: Iowa has no equivalent to the fast food minimum wage rules that exist in California.

The Initial Employment Wage

Iowa has no youth wage and no training wage tied to age. It has an initial employment wage of $6.35 per hour, available for the first 90 calendar days of employment with an employer, for a new hire of any age. Section 91D.1(1)(d) sets it, and it is the provision most often left unused by employers who never knew it existed.

Federal law narrows who can actually receive it. The only federal rate below $7.25 for a new hire is the youth opportunity wage of $4.25 for workers under 20, during their first 90 consecutive calendar days. An employer covered by the Fair Labor Standards Act therefore owes $7.25 from day one to anyone aged 20 or older.

Iowa Administrative Code 481 chapter 230 supplies the mechanics, and they are worth reading once. The 90 calendar days are counted from the employee’s initial day of work. If the initial employment rate changes during the period, the employer pays the new effective rate.

The rehire rules are asymmetric: they turn on whether an earlier stint used up the initial period, which makes them easy to get backwards. The table sets out the state rules, and for an employer covered by the FLSA, the federal age limit above still applies on top.

The initial wage is only one part of hiring someone young. Iowa sets its own hours and prohibited-occupation limits for minors under Iowa Code chapter 92, and federal limits apply on top. Under section 92.7, workers under 16 who work five hours or more in a day must get a half-hour break.

Posting Requirements

Iowa requires its own minimum wage poster, and this is a binding rule, not a suggestion. Iowa Administrative Code 481 rule 234.3 says every employer with employees subject to the minimum wage provisions of the Iowa minimum wage Act must post a notice explaining the Act, in the form the director of the Iowa Department of Inspections, Appeals, and Licensing prescribes. It has to stay up in conspicuous places in every establishment where those employees work, so they can readily see a copy.

The notice the director prescribes is the free poster titled Your Rights Under the Iowa Minimum Wage Law, last revised March 13, 2025. It carries the $7.25 rate, the $300,000 threshold, the $6.35 initial employment rate, the $4.35 tipped share, and the contact details for the Wage and Child Labor Unit. It states the standard in one line: the law requires displaying this poster where it can easily be seen by all employees.

The chapter 91A notice duties in that table are worth understanding, because two of them are conditional and one is not. Under Iowa Code section 91A.6, the written notice of wages and paydays at hire and the advance notice of a pay cut or payday change are triggered only after the director notifies an employer that has paid a wage claim or been assessed a civil money penalty.

A third conditional duty, one the table leaves out, works the same way: a written statement of vacation, sick leave, and similar policies, given on request. The pay statement each regular payday, showing hours worked, wages earned, and deductions made, is different. It applies to everyone from day one, so it is the notice duty to build into payroll now.

Iowa and the Federal Floor

Iowa’s rate and the federal rate are both $7.25, and they got there independently. Iowa set $7.25 effective January 1, 2008. The last federal increase took effect July 24, 2009, about eighteen months later, and the federal floor has not moved since. Iowa was briefly the higher of the two.

Section 91D.1(1)(b) is what links them now. Because it requires the greater of the state wage and the current federal minimum, a federal increase raises the Iowa obligation automatically, while the state figure of $7.25 would remain the floor if federal law ever went the other way.

What to Do When a Rate Rises

A rate change is a payroll project, not a memo. Because Iowa’s only built-in escalator is the federal floor, the trigger will most likely arrive with a federal effective date, and everything below has to be finished before the first pay period that includes that date.

This is the kind of recurring administrative work that quietly eats a founder’s week. Keeping employee records, pay rates, and signed acknowledgments in one place instead of spread across a spreadsheet and an inbox is most of the fix, and it is a large part of why I built FirstHR. FirstHR is an onboarding and HR platform, not a payroll provider, so pair it with whatever runs your payroll.

Frequently Asked Questions

What is the minimum wage in Iowa?

$7.25 per hour, effective January 1, 2008. Iowa Code §91D.1(1)(a) sets the state hourly wage at $6.20 as of April 1, 2007 and $7.25 as of January 1, 2008, and §91D.1(1)(b) requires the greater of that figure or the current federal minimum wage. Both are $7.25 today.

Can an Iowa city or county set its own minimum wage?

No. Iowa Code §364.3(12) bars cities and §331.304(12) bars counties from any ordinance on wages, leave, hiring practices, benefits, or scheduling that exceeds or conflicts with state or federal law. Ordinances adopted before March 30, 2017 were made void and unenforceable on that date.

What can I pay a tipped employee in Iowa?

At least $4.35 an hour in cash wages. The tip credit is capped at 40 percent of the minimum wage under §91D.1(1)(c), which is $2.90 against $7.25. It applies to employees of restaurants, hotels, motels, inns, and cabins who customarily and regularly receive more than $30 a month in tips, and the employer covers any shortfall for the workweek.

Can I pay a new hire less than $7.25 in Iowa?

Under state law, yes. The initial employment wage under §91D.1(1)(d) is $6.35 for the first 90 calendar days with an employer, and it is open to a new hire of any age. An employer covered by the federal FLSA still owes $7.25 to anyone 20 or older, so for that employer the initial rate works only for younger hires.

Iowa Admin Code 481 rule 230.1 counts the 90 days from the initial day of work and blocks the rate for anyone rehired within three years who already completed 90 days.

Is Iowa’s minimum wage going up?

No increase is scheduled. Chapter 91D has no further step and no inflation index. The only escalator is §91D.1(1)(b), which requires the greater of the state and federal rates, so a federal increase would raise the Iowa obligation from its federal effective date.

Does Iowa require a minimum wage poster?

Yes. Iowa Admin Code 481 rule 234.3 requires a notice explaining the Act, prescribed by the director, posted conspicuously in every establishment. The free poster titled Your Rights Under the Iowa Minimum Wage Law, revised March 13, 2025, is that notice. The federal Wage and Hour poster is separate and does not replace it.