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Labor Department Rule Change Could Force Waitstaff to Surrender, Pool Tips

The department says that the rule would benefit cooks and dishwashers, but labor groups warn that restaurant owners could simply pocket the cash.

Published Dec 7, 2017

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In December 2017, the U.S. Department of Labor announced proposed changes to the handling of tipped income, rolling back a 2011 provision that made tips the property of the employee who received them. Restaurant trade groups hailed the move, which they said would lessen the wage gap between waitstaff and "back of the house" employees. Labor groups, on the other hand, said the change would lead to restaurant owners pocketing the tips.

The Department of Labor press release said the changes would apply only to workers making at least the federal minimum wage ($7.25 per hour), not the smaller minimum earned by some tipped employees:

The Department’s proposal only applies where employers pay a full minimum wage and do not take a tip credit and allows sharing tips through a tip pool with employees who do not traditionally receive direct tips – such as restaurant cooks and dish washers. These “back of the house” employees contribute to the overall customer experience, but may receive less compensation than their traditionally tipped co-workers. The proposal would not affect current rules applicable to employers that claim a tip credit under the FLSA.

The Department of Labor promulgated tip regulations in 2011 that restricted this option. Since 2011, there has been a significant amount of litigation involving the tip pooling and tip retention practices of employers that pay a direct cash wage of at least the federal minimum wage and do not claim a FLSA tip credit. There has also been litigation directly challenging the Department’s authority to promulgate the provisions of the 2011 regulations that restrict sharing of tips.

The department also released a fact sheet and list of Frequently Asked Questions.

However, opponents of the proposal argue that it would allow restaurant owners to simply pocket the tips earned by staff. A longer version of the proposal seems to allow for this, saying:

To the extent employers may otherwise make an arrangement to allocate any customer tips to make capital improvements to their establishments (e.g., enlarging the dining area to accommodate more customers), lower restaurant menu prices, provide new benefits to workers (e.g., paid time off), increase work hours, or hire additional workers, these are also potential benefits to employees and the economy overall that may result under the proposed rule. The rule's transfer impacts could be approached with a model of minimum wages being made less binding by the proposed policy; as such, employment in the affected industries and occupations would, on net, be expected to increase. While some baseline workers could be harmed, due to lower overall compensation, both employers and workers who would lack jobs in the relevant occupations in the absence of the rule would experience benefits. Analysis of reduced deadweight loss would be a standard method for quantifying the gains to society of increased employment resulting from a policy such as the one proposed in this NPRM.

“The proposed rule does nothing more than authorize wage theft on the part of the employer," labor attorney Molly Elkin told The Washington Post.

The National Restaurant Association favored the rule change, and that it "acknowledge[d] this loophole, but has not asked the DOL to add a provision that would bar an employer from keeping an employee’s tips, Eater.com reported.

As of 7 December 2017, the proposed rule is subject to a 30-day comment period slated to end on 4 January 2018. U.S. can submit comments on www.regulations.gov until 4 January 2018.

Sources

Strong, Andrea.   "Trump Is About To Make Tip-Pooling Legal Again. Here’s What That Means For Restaurant Workers."     Eater.com.   5 December 2017.

Pacquette, Danielle.   "The Trump Administration Wants Restaurant Workers To Share Tips. Opponents Fear Their Bosses Will Snatch Them."     Washington Post.   4 December 2017.

United States Department of Labor.   "U.S. Department Of Labor Proposal Gives Freedom To Share Tips Between Traditionally Tipped And Non-Tipped Workers."     4 December 2017.

Federal Register.   "Tip Regulations Under The Fair Labor Standards Act (FLSA)."     5 December 2017.

United States Department of Labor.   "Fact Sheet: Notice Of Proposed Rulemaking To Rescind Portions Of Tip Regulations."     Accessed 7 December 2017.

United States Department of Labor.   "Minimum Wages for Tipped Employees."     Accessed 7 December 2017.

United States Department of Labor.   "Fact Sheet #15: Tipped Employees Under The Fair Labor Standards Act (FLSA)."     Accessed 7 December 2017.

United States Department of Labor.   "Notice of Proposed Rulemaking (NPRM): Tip Regulations Under The Fair Labor Standards Act (FLSA)."     Accessed 7 December 2017.

Regulations.gov.   "Tip Regulations Under The Fair Labor Standards Act (FLSA)."     Accessed 7 December 2017.

Kim LaCapria is a former writer for Snopes.

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