Most people assume that when they leave a tip at a restaurant, that money goes to the person who performed the work. Or perhaps the money is pooled with other tips and divvied up among tipped workers at the restaurant.
The Trump administration doesn’t agree. In fact, the Labor Department believes employers ought to be able to get in on the action.
In December, the Labor Department proposed undoing an Obama-era regulation to give businesses the power to decide who gets pooled tip money. The administration justifies the change by arguing that this money could be used to increase the pay of other low-paid, non-tipped workers. So long as everyone is paid the minimum wage, it argues, tips could be shared with back-of-the-house cooks or prep workers.
But the new rule doesn’t require businesses to share the money with workers. Under the proposed regulations, employers could simply pocket the money and use it for other purposes, such as making capital improvements to the business.
If enacted, the new rule would upset the Labor Department’s long-standing traditional enforcement standard — which the Obama administration attempted to codify — that tips belong to the workers who receive them. Under this standard, if employers take tips, they are effectively engaging in wage theft.
Why is this important? Because tipped workers, 67 percent of whom are women, generally earn low wages. Some do well, but the majority do not. There are many more diners, 24-hour truck stops and low-to-modestly-priced restaurants than there are high-priced eateries where larger tips are possible. Waitstaff and bartenders, who make up the lion’s share of tipped workers, typically earn less than $11 an hour including tips.
Meanwhile, my research shows that waitstaff, bartenders and food service workers have low rates of employer-provided benefits such as paid sick leave, vacation pay or retirement contributions. They are twice as likely to live in poverty and are more dependent on public subsidies. These workers often face unreliable schedules, inducing extreme fluctuations in pay. Yet restaurants are of growing importance in the labor market. Restaurant jobs have more than doubled since 1990, even though jobs in the private sector overall increased only 32 percent during that time.
The Labor Department’s proposal would only make life more difficult for tipped workers. The Economic Policy Institute, a leftleaning think tank, estimates that the Labor Department’s proposal could result in a shift of $5.8 billion per year from workers to employers. The Labor Department completed its own economic analysis for the change, but those numbers have never been released to the public. Bloomberg Law, which uncovered the existence of the report, reported that the Labor Department analysis also showed a potential loss to workers of billions of dollars.
Today, our economy is plagued by growing inequality and a shrinking share of national income going to workers. The federal minimum wage for workers has been stuck at $7.25 since 2009, but for tipped workers, the sub-minimum wage has stayed at $2.13 since 1991.
In light of this, we would expect the Labor Department to implement policies that “foster, promote, and develop the welfare of wage earners,” as espoused in its mission statement. Instead, the agency is fighting to promote business interests that will make it more difficult for millions of hard-working Americans and their families to make ends meet. If the Trump administration wants to help struggling workers, it will abandon this wrongheaded proposal.
Originally published in the Washington Post February 20, 2018