Sponsors (12)
The bill strengthens pay and legal protections for tipped workers and clarifies tax and recordkeeping rules, but shifts higher labor, tax‑reporting, and compliance costs onto employers (and likely customers), raising legal risk and creating potential unintended impacts on workers' take‑home pay and small business viability.
Tipped workers (servers, bartenders, other tipped employees) will receive higher guaranteed cash pay immediately and a scheduled phase‑out of the federal tip credit that ultimately guarantees at‑least‑minimum-wage cash pay.
Tipped employees gain clear legal protections to keep all tips, require prompt payment of mandatory service charges to employees, and are protected from managers/supervisors taking tips or employer retaliation for tip‑pool participation.
Employees and employers get clearer, documented procedures and recordkeeping rules for creating/modifying tip pools and classifying mandatory service charges, and mandatory service charges will be treated as tips for Social Security taxation—reducing payroll classification uncertainty and ensuring consistent benefit crediting.
Small businesses in hospitality (restaurants, bars) face materially higher labor and payroll costs during the phase‑in and from reclassifying service charges, which could lead to price increases, reduced hiring, reduced hours, or business closures.
Employers face increased administrative, recordkeeping, and compliance burdens plus expanded penalty/liability exposure (including an immediate cross‑reference to penalties), raising legal risk and likely compliance costs.
Some tipped employees could see lower total take‑home earnings if employers respond by cutting tip rates, reducing hours, changing compensation structures, or otherwise altering tipping practices.
Based on analysis of 4 sections of legislative text.
Phases out the federal tip credit, sets a rising cash wage for tipped workers, strengthens tip‑retention/pooling rules, and treats certain mandatory service charges as tips for payroll tax purposes.
Introduced September 3, 2025 by Jahana Hayes · Last progress September 3, 2025
Ends the federal tip-credit system and phases in a required cash wage for tipped workers while strengthening rules that protect workers’ tips and how mandatory service charges are treated for payroll tax purposes. It sets a multi-year cash-wage schedule starting at $3.60/hour the first year after enactment and increasing annually until it reaches the federal minimum wage, bans employers from keeping or using employee tips (including for card‑processing fees or manager retention), creates new rules and procedures for tip‑pooling, and changes Social Security tax treatment for certain mandatory service charges. Immediate changes include stronger tip‑retention and tip‑pooling protections and a payroll‑tax rule treating parts of mandatory service charges as tips; the phased cash‑wage replacement for the tip credit begins the first year after enactment and ends the old tip‑credit framework once the scheduled cash wage equals the regular federal minimum wage (with an earlier trigger for employers who set up qualifying tip pools).