Recently proposed changes to the handling of tip distribution may create major issues for restaurant employees. In July of this year, the Department of Labor (DOL) announced its intention to reverse current Fair Labor Standards Act (FLSA) rules expressly prohibiting the pooling of tips with anyone other than a valid pool of other tipped employees. These regulations, which went into effect in 2011 under the Obama administration, clearly designate tips as the property of the employees who earned them. As such, employers are prohibited from using this money for anything other than minimum wage tip credit.
The new rules would repeal this prohibition, allowing employers to require tip sharing among kitchen staff, dishwashers, and other non-tipped employees. Proponents of the bill and worker advocates come in on opposite sides of the argument, each with valid points. Here’s what you need to know about this complicated topic.
Arguments for the Proposal
Historically, the average wage of front-of-the-house tipped employees has grown significantly faster than that of back-of-the-house staff. Supporters of the new proposal argue that tip sharing among all restaurant employees evens out the playing field. Since the quality of food preparation typically does impact the amount of tip that is left, this isn’t too far of a stretch.
Some restaurant owners have already found ways around these rules, either by doing away with tipping altogether or changing their service structure. Cooks and other kitchen staff who are allowed to deliver the food to customers essentially become “service facing,” making them eligible to share in a portion of the tips.
The new rules would allow the traditional restaurant structure to remain in place while still addressing the income disparity issue.
Those who object to the proposal site concerns that it opens the door for unscrupulous employers to keep the tips for themselves. Under the current law, most employers take the tip credit and pay tipped employees the “service facing” minimum wage (typically $2.13 per hour) plus tips. Non-tipped employees are paid the regular minimum wage.
The new rules would allow employers to forego the tip credit, pay everyone the regular minimum wage, and distribute tips between the front and back of the house. The problem is that it also creates a loophole that allows employers to keep the tips for themselves without breaking the law. This is particularly troublesome when you consider that low-income employees and immigrant or undocumented workers would have little recourse to file wage theft complaints.
Despite its acknowledgment of this potential problem, the National Restaurant Association has announced its strong support for the proposal without requesting a provision to close the loophole.
What Happens Next?
The DOL has opened up the proposal for comments from the public. It will remain open until January 4th, 2018. At that time, it will either pass as-is or be changed slightly based on public feedback. Adding a provision the keep restaurant owners from pocketing tips would certainly garner more support, but the general consensus is that it will go through without any changes. The final results remain to be seen.