Tipped Worker Protection Act
The Tipped Worker Protection Act would eliminate the federal separate minimum wage for tipped employees and require tipped workers to be paid the same minimum wage as other workers, with a transitional path. It repeals the tip-credit system and the formal “tipped employee” status, and it reorganizes how tips and mandatory charges are handled. The bill requires that tips be owned by employees, prohibits employers from keeping tips (except as part of a legally compliant tip pool), and imposes specific rules for how tip pools can be created, administered, and resolved. It also adds new transparency requirements for service charges and mandates that a portion of mandatory charges be paid to employees. In addition, it treats portions of mandatory charges as tips for Social Security tax purposes. The amendments would take effect immediately upon enactment, but a transitional wage schedule would apply for tipped workers over the first years. Overall, the bill aims to raise tipped workers’ cash wages toward the general minimum wage and to standardize tip handling across employers.
Key Points
- 1Repeal of separate tipped minimum wage; tipped workers would be paid the same minimum wage as non-tipped workers (the wage set forth in the standard minimum wage statute). The current “tip credit” would be eliminated, and the tipped wage would be aligned with the general minimum wage.
- 2Transitional wage schedule for tipped workers:
- 3- For the first year after enactment, cash wages would be at least $3.60 per hour.
- 4- In each subsequent year, the cash wage would increase by $1.50 per hour, not to exceed the federal minimum wage in effect at the start of that year.
- 5- The transition includes a rule for how to treat tip pools established during the transition and a date-based path to full alignment with the minimum wage.
- 6All tips belong to employees and no employer may retain tips (with limited exceptions related to legally compliant tip pools):
- 7- Employers may not keep tips or use them to cover things like payment processing fees.
- 8- Tips must be distributed to non-supervisory employees through a pooling system established under detailed rules.
- 9Tip pools and administration:
- 10- Employers may pool tips among non-supervisory employees, with a governance framework that includes thresholds for voting to establish or modify a tip pool (not less than 30% of non-supervisory employees must request a vote, and at least 51% of all eligible employees must vote in favor).
- 11- There are strict recordkeeping requirements (employers must maintain and share voting records) and protections against retaliation for those voting or participating.
- 12- The system must be administered by the employer at the employer’s expense, with rules to ensure voluntary participation, equal sharing among participants, and transparency of records.
- 13Service charges and discretionary charges:
- 14- If an employer imposes a mandatory service charge, it must disclose the purpose and the portion that will be paid to employees, then promptly pay that portion to employees.
- 15- If a charge is discretionary, the employer may not add it to the price unless a customer specifically requests it.
- 16Penalties and enforcement:
- 17- Penalties under the Fair Labor Standards Act would apply to any provision of section 3(m)(2) that is violated, including misusing or failing to properly handle tips.
- 18- Penalties are updated to reflect the broader scope of tip-handling provisions.
- 19Tax treatment:
- 20- Amounts from mandatory charges that are paid to employees as described in the bill would be treated as tips for federal payroll tax purposes (FICA).
- 21Effective date:
- 22- Amendments take effect on the date of enactment and apply to tips received on or after that date.