Trump administration’s proposed labor rule would rob tipped workers of $5.8 billion per year

The Department of Labor's justification doesn't hold water, an economist says.

CREDIT: Getty Images
CREDIT: Getty Images

In December, the Department of Labor proposed a rule that would rescind portions of tip regulations, allowing employers who pay the minimum wage to take workers’ tips. According to Economic Policy Institute research, tipped workers would lose $5.8 billion a year in tips as a result of this rule. Women in tipped jobs would lose $4.6 billion annually.

Current regulations prohibit employers from taking tips. The department justifies the proposed rule by saying it is partly about fairness to “back of the house” workers, such as dishwashers and cooks, who don’t typically receive tips. The rule would theoretically allow employers to give some of the tips to back-of-the house workers. On the surface, the rule seems to address the great racial divide in high-end restaurant restaurants, in which white non-Latinx people tend to work in higher paying-positions as waiters and bartenders, and Latinx people tend to work in lower-paying jobs, such as line cooks and other back-of-house positions. The median hourly wage for restaurant waiters and waitresses is $9.61 and dishwashers’ median wage is $10, according to the Bureau of Labor Statistics.

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But employers are free to decide not to distribute those tips to those low-income workers, Heidi Shierholz, an economist at the Economic Policy Institute, told The Washington Post.

“They’re basically taking money from one group of low-income workers and trying to hide it by suggesting that some of that money could go to other low-wage workers,” Shierholz said. “But in fact, the administration is giving a windfall to restaurant owners out of the pockets of tipped workers.”

Working as a server is one of the 20 leading occupations of employed women, according to the Department of Labor. Seventy-one percent of servers are women. Restaurant workers are also more likely to be in poverty, with 16.7 percent of restaurant workers living below the poverty line compared to 6.3 percent of workers outside the industry.

States most at risk for tip theft include Texas, Florida, Louisiana, Ohio, and Tennessee — states that President Donald Trump won in the 2016 election.

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When news of the proposed rule broke in December, Saru Jayaraman, president of Restaurant Opportunities Centers United, a non-profit that advocates for improvement of wages and working conditions for low-wage restaurant workers, said the rule “flies in the face of decades of federal and state law and precedent.”

“By allowing employers to take control of their employees’ tips, this regulation would push a majority-women workforce, already forced to tolerate extreme harassment to feed their families through tips, further into financial instability, poverty, and vulnerability to harassment and assault,” Jayaraman said.

Still, Jayaraman said the “real barrier” to fair wages and working conditions is the subminimum wage system. 

The federal tipped minimum wage has remained at $2.13 per hour since 1991, when lobbyists from the restaurant industry championed an amendment that uncoupled the federal minimum wage from the tipped minimum wage.

The Department of Labor did not give an estimate of the amount of tips shifted from workers to employers, despite the fact that analyzing costs and benefits to proposed rules is legally required for the rulemaking process, EPI noted in its analysis.

The rule is open for public comment in February.