Spotlight Exclusives

The Department of Labor Wants to Let Employers Take Workers’ Tips; It’s up to States to Stop Them

David Cooper, Economic Policy Institute David Cooper, Economic Policy Institute, posted on

Tipped workers have demanding jobs that typically pay very little—even after tips. Yet in a move that can only be viewed as a giveaway to restaurant industry lobbyists, the Trump administration is proposing to make these workers’ lives even more difficult, by letting restaurants and other employers of tipped workers claim ownership over workers’ tips. That’s right—the extra 20 percent you left for that friendly server may soon be going into her boss’s pocket.

First, a little background on how tipped workers are paid. Under federal law, workers who regularly receive tips may be paid a base wage as low as $2.13 per hour, so long as the tips they receive over the course of a workweek, plus the base wage, averages out to at least the federal minimum wage $7.25 per hour. If it doesn’t, employers are supposed to make up the difference.

This unique pay system—the United States is the only country in the world to employ it—leads to two frustrating outcomes for tipped workers. The first is that in most states, tipped workers’ earnings are almost entirely what customers give them in tips. In fact, tipped restaurant staff in states that adhere to the federal tipped minimum wage often do not receive a paycheck, because their $2.13 base wage goes entirely to cover taxes. (I can attest to this fact, having received many voided paychecks in my six years as a restaurant server.) The second is that income for tipped workers can vary significantly from week to week, with differences driven by everything from customer moods to the weather. And because workers’ base pay is determined by the total tips received over the course of a week, a few slow lunch shifts can turn a busy Saturday night’s windfall into nothing more than minimum wage.

Not surprisingly then, pay for most tipped workers is low. The median hourly wage of restaurant servers and bartenders, including tips, is only $10.67 per hour. These jobs rarely come with benefits, and are often subject to irregular and changing schedules that make it hard for workers to budget or plan. As a result, tipped workers are twice as likely to be in poverty as workers who get a regular paycheck, and significantly more likely to have to rely on public assistance programs.

The Trump administration is now proposing to make it so that tipped workers may still only get minimum wage regardless of how much customers tip.

The Department of Labor (DOL) recently proposed changing long-standing regulations on tip-pooling to make it legal for restaurants to confiscate workers’ tips, so long as tipped employees were paid at least the minimum wage. DOL claims that this change would allow restaurants to share tips between the servers and bartenders who receive them and “back of the house” staff—such as cooks and dishwashers—whose wages are currently paid directly by the restaurant. But nothing in the proposed rule actually requires employers to share tips—they can choose to do with them whatever they please. Some restaurants may share tips with cooks and dishwashers. They may also take a cut for managers and ownership too. And there’s nothing to prevent them from reducing cooks’ and dishwashers’ base pay on the premise that they will now receive tips—leaving them no better off than they were before.

The Economic Policy Institute estimates that as a result of this rule change, $5.8 billion annually would be shifted from tipped workers to their employers—an average of about $1,000 of income for each tipped worker. Nearly 80 percent—$4.6 billion—of these tips would be taken from women.

For DOL to propose making it legal for employers to pocket the income of their staff—something that too often happens illegally already—is astonishing. What’s even more unconscionable is that the department appears to have known this rule would be devastating for tipped workers and political appointees attempted to cover it up. Bloomberg Law has reported that DOL produced an analysis showing tipped workers would lose billions of dollars, yet chose to suppress the analysis when the rule was published.

If the Department of Labor—whose mission is to protect the welfare of America’s wage earners—does not rescind this harmful rule, states must step in to protect the tipped workforce. Laws in 15 states already stipulate that tips are the sole property of the worker who earns them, and that employees cannot be compelled to pool tips involuntarily. More states should follow suit to protect their workers from tip theft.

Tipped workers face enough challenges already; they should not have to tolerate their employer taking a cut from their pay.

David Cooper is a Senior Economic Analyst at the Economic Policy Institute.


« Back to Spotlight Exclusives