Small Business Flexibility Act

Bill Number

H.R. 85

Origin Chamber

House

Congress

119th Congress, Session 1

Policy Area

Labor and Employment

Status

Introduced

Latest Action

2025-01-03: Referred to the House Committee on Education and Workforce.

Last Updated

2025-07-21T19:44:15Z

AI-Generated Summary

Purpose of the Legislation

The "Small Business Flexibility Act" (H.R. 85) aims to provide more flexibility to employers, particularly small businesses, by expanding the rules for sharing tips (known as tip pooling) under the Fair Labor Standards Act (FLSA) of 1938. This law sets minimum wage and overtime standards for most U.S. workers. The bill seeks to allow tips to be distributed more broadly among employees while ensuring certain protections for tipped workers.

Key Provisions

• Expansion of Tip Pooling Eligibility: Amends Section 3(m)(2) of the FLSA to permit tip pooling not just among employees who regularly receive tips (like servers or bartenders), but also to include other employees under specific conditions.
• Defined Employee Pools:
• Pool Type 1: Employees who customarily and regularly receive tips (e.g., waitstaff).
• Pool Type 2: A broader group that includes:
• Employees who customarily receive tips and are paid a cash wage by the employer that is at least the federal minimum wage (currently $7.25 per hour under FLSA Section 6(a)(1)).
• Employees who do not customarily receive tips (e.g., cooks or dishwashers), but only if included in the same pool as the above tipped employees meeting the cash wage requirement.
• No Changes to Employer Tip Retention: Employers are still prohibited from keeping tips for themselves; all tips must go to employee pools.

Significant Changes to Existing Law

• Under current FLSA rules, tip pooling is limited to employees who "customarily and regularly receive tips." This bill removes that restriction by replacing it with the new "pools of employees" definition, allowing non-tipped workers to share in tips for the first time in certain scenarios.
• It introduces a safeguard: Tipped employees in expanded pools must receive full minimum wage in cash from the employer, meaning tips cannot be used to offset the employer's minimum wage obligation (a practice called the "tip credit," which remains available but not required in these pools).
• These changes apply nationwide, affecting how tips are handled in industries like restaurants and hospitality.

Potential Impacts

• On Government Agencies: The Department of Labor (DOL), which enforces the FLSA, may need to update guidance, training, and enforcement procedures to monitor compliance with the new pooling rules, potentially increasing administrative workload.
• On Citizens (Workers and Employers):
• Workers in tipped jobs could see more even distribution of tips, potentially benefiting back-of-house staff (e.g., kitchen workers) but possibly reducing take-home pay for front-of-house tipped employees if pools dilute shares.
• Small businesses gain operational flexibility to motivate non-tipped staff through tip sharing, which could help with retention and morale without raising base wages.
• On International Relations: No direct impacts, as this is a domestic labor law focused on U.S. workplaces.

Main Stakeholders Affected

• Tipped Employees (e.g., servers, valets): May experience changes in tip income distribution; protected by the full cash wage requirement to prevent wage shortfalls.
• Non-Tipped Employees (e.g., cooks, hosts, managers in some cases): Gain potential access to tip pools, increasing their earnings in qualifying workplaces.
• Employers in Service Industries (especially small businesses like restaurants and hotels): Benefit from flexibility in compensating staff, potentially lowering costs compared to raising all wages.
• Department of Labor (DOL): Responsible for oversight, investigations, and ensuring no employer misuse of the rules.

Notable Legal, Constitutional, or Political Implications

• Legal Implications: Expands FLSA interpretations without altering core minimum wage or overtime rules, but could lead to litigation if disputes arise over "customary" tip receipt or pool fairness. Courts may need to clarify boundaries to prevent abuse, such as employers forcing non-tipped workers into pools.
• Constitutional Implications: None apparent; the bill aligns with Congress's authority under the Commerce Clause to regulate interstate labor practices and does not infringe on free speech, due process, or other rights.
• Political Implications: Supports pro-business policies by easing regulations for small employers, potentially appealing to conservative lawmakers (as introduced by Rep. Biggs, R-AZ). It may spark debate on worker protections, with labor advocates concerned about tip dilution and businesses praising added flexibility. If passed, it could influence state-level tip laws, as states often align with or exceed federal standards.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Rep. Biggs, Andy [R-AZ-5]

Recent Actions

• 2025-01-03: Referred to the House Committee on Education and Workforce.
• 2025-01-03: Introduced in House
• 2025-01-03: Introduced in House

Bill Versions

• Small Business Flexibility Act — issued 2025-01-03 — PDF (2 pages)