TIPS Act Aims to Eliminate Subminimum Wage and Tax on Tips

Rep. Steven Horsford (D-Nev.) recently introduced the Tipped Income Protection and Support (TIPS) Act to the House of Representatives. This legislation would eliminate the income tax on gratuities tipped workers receive and abolish the subminimum wage for tipped workers across the U.S., Nation’s Restaurant News reported.

The subminimum wage, which allows employers to pay workers below the federal minimum wage with the expectation that tips make up the difference, has been a hotly debated issue. In recent developments, One Fair Wage attempted to push for the elimination of the tip credit in Ohio, but it did not make it onto the ballot. Additionally, a federal appeals court struck down the Department of Labor’s revised 80/20 rule, which affected how much of a worker's time could be spent on tip-supporting tasks.

In support of the TIPS Act, Rep. Horsford stated, "No one working full-time in America should live in poverty." Meanwhile, industry advocates argue that eliminating the tip credit would harm restaurant workers, as it could limit earning potential and force employers to cut hours or raise prices.

Franchisees in the restaurant industry may be particularly affected by this proposed legislation, as changes to wage structures could have significant operational and financial impacts on their businesses.