The Trump administration’s proposal of a new rule to rescind an Obama-era rule prohibiting tip pooling among certain restaurants workers sent shock waves through the media. Politicians spoke out against the administration, celebrities recorded videos, and lobbyists were mobilized to put pressure on the Labor Department. In the aftermath, a little perspective is in order.
We need some clarity on the proposed rule that would change the way tips are distributed and reported. First and foremost, the rule has not yet been implemented. It must undergo a period of public discussion before the Labor Department finalization and implementation. It would be helpful if people took the time to understand the rule and its root before taking a position.
History of the Rule
The history of the proposed rule actually dates back to the mid-1960s, when an amendment to the Fair Labor Standards Act (FLSA) created what is known as the ‘tip credit’. The credit can be used to offset federal minimum wage requirements among restaurant workers who receive significant tip income, particularly servers and bartenders.
Another amendment was added in 1974 to require employers who used the tip credit to retain all employee tips rather than allowing workers to keep them. The rule was meant to encourage tip distribution among all workers in a particular establishment.
Finally, the Obama Labor Department instituted a new rule in 2011 that applied the 1974 amendment to all restaurant employers regardless of whether they use the tip credit or not. The rule all but eliminated tip pooling.
The New Rule
Now the Labor Department seeks to undo what was done in 2011 by once again allowing restaurant employers who use the tip credit to utilize tip pooling as well. And while it is true that they could confiscate all tip income and keep it for themselves, any such practice is rare in the restaurant industry. Employers who did as much would never be able to find enough servers are bartenders to keep fully staffed.
What the new rule does in practical terms is this: it allows employers who use the tip credit to share worker tips with other staff members who work just as hard but do not receive the benefit of tip income. We are talking cooks, dishwashers, hosts, etc.
Helping Employers Help Staff
If you want to know how the proposed rule would affect restaurant workers, an op-ed piece written by Joshua Chaisson and published by the Washington Examiner explains it well enough. Chaisson is a career restaurant server who, despite his opposition to President Trump, fully supports the new rule.
As Chaisson explains it, undoing the Obama-era rule makes it easier for restaurants to balance out wages between tipped employees in what he describes as “heart of the house” workers who don’t earn nearly as much.
According to Chaisson, the disparity being corrected by the Department of Labor is easily observable in California, where a 36% pay increase in 2015 lead to servers earning, on average, $30 per hour when tip income was included. The cooks and dishwashers out back also benefited from the minimum wage increase, but not the tips – because servers and bartenders were not allowed to share their good fortune. The rule helps employers help staff be reinstating tip pooling.
BenefitMall, a Dallas-based payroll and benefits administration company, says employers in the restaurant industry should keep a close eye on what the Labor Department does. If they do end up rescinding the 2011 rule, restaurants utilizing the tip credit will have to change the way they collect, distribute, and report tip income.