Tipped Worker Protection Act Phases Out Subminimum Wage, Mandating Full Minimum Wage for Servers

If you’ve ever worked for tips—or just eat out regularly—this bill is a major shakeup. The Tipped Worker Protection Act is designed to end the long-standing practice of paying tipped employees a lower minimum wage than everyone else. This legislation phases out the "tip credit" system, meaning that eventually, every server, bartender, and other tipped worker will be guaranteed the full federal minimum wage before tips even enter the picture.

The End of the Tip Credit

Right now, employers can pay a lower cash wage (sometimes called the subminimum wage) and use your tips to make up the difference to hit the federal minimum wage floor. This bill eliminates that system, but it won't happen overnight. The law sets up a transition period where the required cash wage starts at $3.60 an hour in the first year and increases by $1.50 annually until it hits the full standard minimum wage. This is a big deal for financial stability. Instead of relying almost entirely on customers for your base income, you get a higher, guaranteed paycheck, which helps with everything from budgeting to qualifying for a loan. However, service industry employers who rely on that lower labor cost will definitely feel this change, which could lead to increased menu prices or service charges for customers.

Who Counts as Tipped, Anyway?

This bill gets tough on how employers classify staff, which is crucial for determining pay. Previously, if you regularly made over $30 a month in tips, you were considered "tipped." The new rules are much stricter. Under Section 2, if you spend more than 20 percent of your workweek doing tasks that don't directly generate tips—think rolling silverware, cleaning, or prep work away from customers—you can’t be considered a tipped employee for that workweek. This prevents employers from paying the lower tipped wage for hours spent on non-service tasks. For example, if a bartender spends three hours of a ten-hour shift stocking the cellar, that 30% non-tipped time means they must be paid the full minimum wage for the entire shift.

Hands Off the Tips: New Rules for Employers and Managers

The bill institutes a zero-tolerance policy for employers touching employee tips. Section 3 makes it crystal clear: employers absolutely cannot keep or use employee tips for any reason, even if they aren't taking a tip credit. This is a direct shot at a common practice where employers deduct credit card processing fees from employee tips—a cost that can add up fast. Under this new law, employers have to eat those fees themselves. Furthermore, managers and supervisors are strictly barred from receiving or using any portion of employee tips, ensuring that tips are distributed only among the non-supervisory staff who earned them.

Employee Power Over Tip Pools

For the first time, employees get a formal, democratic mechanism to control how tips are shared. If at least 30 percent of non-supervisory staff request a vote on setting up or changing a tip pool, the employer must hold that vote. The pool is only established or modified if 51 percent of the employees vote yes. This means that if you and your coworkers think the current tip distribution is unfair, you now have a formal process to change it, rather than relying solely on management's decision. The employer must administer this new system at their own expense and keep detailed records of the votes and the pool structure.

Service Charges Get Taxed Like Tips

Finally, the bill clarifies the confusion around mandatory service charges—those automatic fees often added to large parties or banquets. Section 4 states that the portion of a mandatory service charge that is actually paid out to employees will now be treated as tips for the employer’s Social Security tax credit purposes. This is an administrative change that benefits the employer's tax bottom line, potentially softening the blow of the increased labor costs mandated elsewhere in the bill, provided they pass those charges on to the staff.