The proposed “tip stealing” rule and its impact on women workers

By Saswat Pattanayak

If the Department of Labor (DOL)’s proposed rule comes into effect, whereby tips are shifted from workers to employers, workers may lose $5.8 billion in tips. Women will stand to be the biggest victims of this anti-worker legislation piece that would deprive them of nearly $4.6 billion, considering they comprise 80% of the workforce.

The Department of Labor is proposing to “rescind portions of its tip regulations issued pursuant to the Fair Labor Standards Act that imposes restrictions on employers that pay a direct cash wage of at least the full federal minimum wage and do not seek to use a portion of tips as a credit toward their minimum wage obligations.”

Disguising as a “tip pooling” rule, this could theoretically enable restaurant owners and other employers to distribute the tips among their back-of-the-house staffers. But since it does not require them to do so, the wealth thus amassed could in fact be utilized towards increasing executive salaries, or be invested for greater profits of the owners.

The latter is more probable since that is in fact the trend even in cities where it is illegal on part of employers to pocket tips. According to research by the Center for Urban Economic Development, National Employment Law Project, and UCLA Institute for Research on Labor and Employment, almost 12 percent of workers had their tips stolen from them by their supervisors or employers in cities such as Chicago, LA, and NYC.

Since there is no upper limit to salaries, employers are already hiring workers with a competitive rate – and if employers use the proposed rule to share tips, there is a greater possibility that the base pay for new hires will indeed be made lower.

While the take-home salary of back-of-the-house workers may remain more or less unchanged, the employers will stand to gain $5.8 billion a year windfall – which is 16.1% of the estimated $36.4 billion in tips earned by tipped workers annually. A comprehensive data analysis of this possibility is available in the report prepared by the Economic Policy Institute.