New Tipped Employee Rules Give Employers Control Over Pay Periods, Shifting Minimum Wage Risk to Workers

The Tipped Employee Protection Act kicks off by completely rewriting the rulebook for what counts as a “tipped employee” under federal labor law. Right now, it’s a pretty simple test: if you regularly pull in more than $30 a month in tips, you’re tipped. This bill scraps that clear, historical standard.

Instead, the new definition says you’re a tipped employee if the combination of your cash wage plus your tips equals at least the federal minimum wage over a defined “work period.” This sounds fair on the surface—who can argue with hitting the minimum wage floor? But the devil, as always, is in the details, specifically in who gets to define that “work period.”

The Employer’s New Stopwatch

Under this legislation, the employer gets to set the length of the “work period” used for this calculation. This period could be a day, a week, two weeks, or even a full month (28 days). This is the key provision that changes the game for anyone relying on tips, from servers to delivery drivers. Previously, the law focused on whether you receive tips; now, it focuses on whether your employer calculates that your total compensation meets minimum wage over a period they choose.

For a server working at a busy restaurant, their tips might fluctuate wildly. On a slow Tuesday, they might not clear the minimum wage threshold. On a packed Saturday, they might double it. Under the old system, that fluctuation was just part of the job, and they were guaranteed a minimum cash wage on top of their tips. Under this new system, an employer could set a monthly work period. This means that if the server has a few slow weeks, the employer can essentially wait until the end of the month to see if the busy weeks balance out the slow ones, rather than ensuring the minimum wage is met consistently week-to-week.

The Calculation Catch-22

This shift moves a significant amount of risk onto the employee. If your employer sets a bi-weekly or monthly work period, any shortfall in wages during the first half of that period isn't immediately addressed. The employer has the power to define the terms of the calculation, which could easily be manipulated to minimize direct cash payments. For instance, if you’re a bartender, your employer might pay the absolute minimum cash wage required by federal law, knowing they have a long grace period to see if your tips catch up to the minimum wage threshold before they have to top up your pay.

Furthermore, the bill broadens the definition of who counts as a tipped employee by removing any consideration of the specific duties performed. This could potentially pull in workers who spend less time directly serving customers but still receive some tips, further complicating the wage calculation and potentially justifying a lower direct cash wage for a wider range of staff. This legislation hands employers a lot of administrative flexibility, but for tipped workers living paycheck to paycheck, it introduces serious uncertainty about when and how their total compensation will actually hit the minimum wage mark.