H.R.85 amends the Fair Labor Standards Act (29 U.S.C. 203(m)(2)) to expand which employees may be included in employer‑mandated tip pools. The bill replaces the current single‑class rule for tip pools with a cross‑reference to a new subparagraph that lists two types of permissible pools, and it conditions inclusion of non‑tipped employees on a cash‑wage requirement for tipped workers.
This change gives employers explicit federal authority to share tips with employees who do not "customarily and regularly" receive tips, but only where the tipped employees are paid a cash wage at least equal to the wage under section 6(a)(1) of the FLSA (the federal minimum). That shifts the economics for employers and tipped workers: employers can redistribute tips more broadly, but the bill as drafted makes that option contingent on foregoing the traditional federal tip credit for those tipped employees, creating both cost and compliance trade‑offs.
At a Glance
What It Does
Rewrites the FLSA tip‑pooling rule so permissible pools are those listed in a new subparagraph (C). It expressly allows pools to include employees who do not customarily receive tips, provided certain tipped employees are paid a cash wage no less than the federal minimum wage in section 6(a)(1).
Who It Affects
Restaurants, bars, salons, and other businesses that rely on tipped staff and currently use tip credits; tipped employees (servers, bartenders) and non‑tipped back‑of‑house staff (cooks, dishwashers, hostesses) who could be added to pools; payroll and HR teams responsible for wage compliance.
Why It Matters
The bill creates a clear federal pathway for including non‑tipped workers in tip pools but ties that pathway to eliminating the federal tip credit for the relevant tipped employees. That alters labor costs, tip distribution patterns, and compliance obligations — and will interact with state laws that are more protective of tipped workers.
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What This Bill Actually Does
Under current federal rules, employers may only require tip pooling among employees who "customarily and regularly receive tips." H.R.85 changes that by adding a new clause that effectively creates two categories of permissible pools: the familiar group of employees who normally get tips, and a broader group that can include employees who do not normally get tips — but only when certain tipped employees are paid at least the federal minimum wage in cash. In practice, employers seeking to include back‑of‑house staff in a mandatory tip pool will need to pay the tipped staff a higher cash wage than the lower tipped minimum that existed under the federal tip‑credit framework.
That cash‑wage condition matters because the bill's language ties inclusion to the wage in section 6(a)(1), i.e., the full federal minimum. Employers that choose to open broader tip pools will therefore be trading away the ability to apply a federal tip credit against those employees' wages.
The result is a direct trade: broader tip sharing in exchange for higher wage payments from employers.The bill's text as written also contains a drafting inconsistency that creates legal uncertainty: one clause appears to require employees included in the pool both to "customarily and regularly receive tips" and simultaneously to "not customarily and regularly receive tips." That contradiction will likely be a focal point for administrative guidance or litigation if the statute becomes law. Separately, the amendment affects only federal permissibility; it does not by its text override state statutes that prohibit certain tip‑sharing arrangements or that treat tips as the property of individual employees more restrictively than federal law.
The Five Things You Need to Know
H.R.85 amends 29 U.S.C. 203(m)(2) of the Fair Labor Standards Act to change who may be included in mandatory employer tip pools.
The bill replaces the current statutory reference to "employees who customarily and regularly receive tips" with a cross‑reference to new subparagraph (C), which defines permissible pools.
Subparagraph (C)(ii) conditions inclusion of non‑customarily tipped employees on the requirement that certain tipped employees receive a cash wage not less than the wage in section 6(a)(1) (the federal minimum wage).
The text contains an internal inconsistency that, as drafted, appears to require an employee both to "customarily and regularly receive tips" and to "not customarily and regularly receive tips," creating legal ambiguity.
The amendment addresses federal permissibility only; it does not repeal or preempt state laws that are more protective of tipped workers or that impose different rules on tip distribution.
Section-by-Section Breakdown
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Short title
Designates the act as the "Small Business Flexibility Act." Practically this line only names the bill; it does not affect substantive rules or compliance obligations.
Redirects the existing pool definition to a new subsection
This provision removes the fixed phrase that limits tip pools to employees who "customarily and regularly receive tips" and instead points the statute to whatever pools are defined in a newly added subparagraph (C). For practitioners, this is the trigger: the old blanket prohibition on including non‑tipped staff in mandatory tip pools no longer appears in the same place and will be superseded by the new definitions in (C). Payroll and HR policies that rely on the old wording will need revision to reflect the new permissible pool definitions.
Defines two categories of permissible tip pools and imposes a cash‑wage condition
Subparagraph (C) sets out the pools permitted under the statute. Clause (i) preserves the traditional pool of employees who customarily and regularly receive tips. Clause (ii) attempts to allow inclusion of employees who do not customarily receive tips, but only where tipped employees in the pool are paid a cash wage not less than the federal minimum in section 6(a)(1). The mechanics mean employers can broaden tip distribution to back‑of‑house staff only by paying tipped staff at least the full minimum wage (thereby removing reliance on a federal tip credit for those employees). This shifts employer cost and payroll calculations and creates a compliance hinge: whether the employer in fact pays the required cash wage determines the legality of the broader pool.
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Explore Employment in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Back‑of‑house and non‑tipped staff (cooks, dishwashers, prep cooks): the bill creates a federal pathway for these employees to receive a share of tips if their employer elects to broaden the pool and meet the wage condition.
- Employers, especially small restaurants and bars: firms gain explicit federal authorization to redistribute tips among more roles, allowing managers to allocate gratuities across front‑ and back‑of‑house staff when they pay the required cash wage.
- Payroll and HR teams at affected businesses: clearer federal language (despite drafting issues) lets employers design tip‑sharing programs with a defensible statutory hook, reducing some legal uncertainty about mandatory broad pools.
Who Bears the Cost
- Employers that want to include non‑tipped staff in tip pools: they must pay affected tipped employees at least the federal minimum in cash, eliminating any federal tip credit and increasing wage bills.
- Tipped front‑of‑house employees (servers, bartenders): broader pools can reduce the portion of tips that remain with front‑of‑house staff, changing their take‑home pay mix and creating potential disputes over allocation and transparency.
- State labor agencies and compliance teams: the amendment will increase enforcement complexity, especially where state laws differ; agencies may need to issue guidance or defend actions in litigation over the bill's ambiguous language.
Key Issues
The Core Tension
The bill forces a trade‑off between employer flexibility to distribute tips across job categories and protections for tipped workers: it permits broader pooling only if employers pay tipped employees the full federal minimum in cash, meaning employers must choose between preserving the federal tip credit (and narrower tip pools) or paying higher wages to enable broader tip sharing — a choice that has direct consequences for labor costs, tip income distribution, and enforcement complexity.
Two practical tensions stand out. First, the bill ties broader tip pooling to a cash‑wage trigger: employers who want to include non‑tipped staff must pay tipped employees at least the full federal minimum.
That removes the federal tip credit for those employees, raising employer labor costs and encouraging a business trade‑off — pay more in wages to permit broader tip sharing, or keep the tip credit and preserve the narrower pool. Second, the statutory language appears internally inconsistent (one clause simultaneously references employees who both "customarily and regularly receive tips" and those who do not), which creates immediate uncertainty about which employees may lawfully be included.
That drafting problem will likely require DOL interpretive guidance or judicial resolution before employers can rely on the new rule with confidence.
A third complication is the relationship with state law. The FLSA sets a federal floor but not a ceiling; several states currently bar inclusion of non‑tipped employees in mandatory tip pools or regulate tip ownership more strictly.
Employers operating across states will therefore face a patchwork: compliance with the federal amendment does not guarantee compliance with state restrictions. Finally, the bill increases administrative burdens around wage accounting, payroll changes, and recordkeeping because employers will need clear documentation that the requisite cash wage was paid to justify a broader pool.
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