The Department of Labor (DOL) recently announced proposed changes to the tip regulations under the Fair Labor Standards Act (FLSA). Currently, the law states that tips belong to the employees who received them. The proposed rule would make it legal for employers to pool tips received by workers who make at least the federal minimum wage of $7.25 per hour. The DOL states that the proposed rule is aimed at decreasing wage disparities between tipped and non-tipped workers.
More Equitable Tip Distribution
Restaurants support the rule, claiming that it will benefit back of the house employees such as cooks and dishwashers who typically receive less compensation than front of the house employees such as waiters and waitresses. The rule would allow back of the house employees who do not traditionally receive tips (but do contribute to the customer experience) to share the tips earned by their front of the house counterparts.
However, labor groups warn that this proposed change would likely not result in the tip pooling scenario presented by the DOL. Rather, because the rule does not require employers to distribute tips, they may simply keep the tips for personal use, to increase executive pay or to make improvements to their business. Opponents to the bill point out that employers are already pocketing tips illegally, according to a study that found that 12 percent of tipped workers in Chicago, Los Angeles and New York had their tips stolen by their employer.
Even if employers allow back of the house workers to participate in the tip pool, they are unlikely to benefit. There is no limit to what these workers may be paid, and they typically earn low wages. Employers would likely reduce these workers’ base pay in exchange for giving them tips from the pool, leaving their salary largely unaffected.
Employees Will Lose Billions of Dollars in Tips
The Economic Policy Institute (EPI) estimates that tipped workers will lose $5.8 billion a year in tips if this rule goes into effect. Women would suffer disproportionately because they are more likely to both be tipped workers and to earn lower wages. Nearly 80 percent of tips would be taken from women, costing them $4.6 billion a year, while men would lose $1.2 billion. White, non-Hispanic workers stand to lose $3.5 billion, the most money as compared to other races and ethnicities. In New Jersey alone, it is estimated that tipped employees would lose nearly $120 million per year.
The EPI notes that the DOL did not release its own estimate of the amount of tips that would be redirected to employers despite being legally required to do so. The institute further notes that this rule would likely result in a windfall to restaurant owners and other employers, at the grievous expense of their tipped employees.
Middletown Employment Lawyers at McOmber & McOmber, P.C. Handle Wage and Hour DisputesNew Jersey residents are entitled to a minimum of $8.38 per hour, from either base pay or a combination of base pay plus tips. The Middletown employment lawyers at McOmber & McOmber, P.C. are experienced in both representing employees in wage and hour disputes and counseling employers regarding their duties under the FLSA. We represent clients throughout New Jersey, including those in Marlton, Middletown, Cherry Hill and Red Bank. Call us today at 732-842-6500 for a free, confidential consultation or contact us online.