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The pay-disparity between tipped and non-tipped employees is one of the more contentious issues facing restaurants today. On December 4, 2017, the Department of Labor proposed new regulations that are intended to reduce this pay-gap. But critics fear that the proposed regulations will create additional problems and will legalize tip theft, which is already a huge problem in the restaurant industry.
President Trump’s proposed changes would roll-back regulations under the Fair Labor Standards Act (FLSA) that were enacted under former-President Obama in 2011. The new law would allow restaurants to share tips among front-of-house workers, like servers and bartenders, and back-of-house employees like cooks and dishwashers.
Since 2011, employers were prohibited from distributing tips to anyone other than the front-of-house workers who earned them. But starting in July of 2017, the Department of Labor ceased enforcing the ban on tip pooling. Now, in an effort to reduce the pay gap between front-of-house and back-of-house restaurant employees, the Department of Labor has proposed a new law that would once again make tip pooling legal. However, the new rule would only apply where restaurant workers are paid a full minimum wage, and not where employers take a tip credit.
The Federal Labor Standards Act (FLSA) sets the current federal minimum wage at $7.25 per hour and allows employers to take a “tip credit” for service-facing employees who receive tips. These employees are paid $2.13 per hour, far less than minimum wage, as long as tips make up the difference and bring that wage to the federal minimum $7.25 per hour.
Under a traditional model, the employer takes the tip credit and pays its customer-facing employees the tipped-minimum wage of $2.13 per hour, and the employee keeps any tips. The restaurant pays cooks and dishwashers, who do not receive tips, the minimum wage of $7.25 per hour.
This has created a sharp disparity between tipped workers and non-tipped workers. Today, tipped employees make 300% more than what they earned 31 years ago. During that same time-frame, non-tipped employees have only seen a 20% increase in wages.
Under President Trump’s proposed changes, if employers pay all employees the federal minimum wage of $7.25 per hour, any tips collected would become the property of the employer. The employer could then choose to split tips between front-of-house and back-of-house staff; or they could simply keep the money to increase their profits.
Employees worry that if the proposal to make tip pooling legal becomes law, managers will not share tips properly, or will keep the tips entirely. Leaving decisions regarding tips to management will create suspicion among tipped employees, especially in an industry where tip theft is rampant.
The concern is not simply that front-of-house employees would be required to share tips with back-of-house employees. Rather, critics worry that once tips become the property of the employer, the employer can decide what to do with the tips. The employer could decide to share tips among front- and back-of-house employees. Or, it could keep all of the tips to increase the restaurant’s profit.
Critics of the new rule also express concern about its undue burden on women. Women make up the majority of service industry workers, and are twice as likely to be harassed at work as are their male co-workers. This is due to a combination of their interactions with customers, and uniform requirements. Critics of the new law making tip pooling legal worry that if tips become property of the employer, women may be pressured to tolerate inappropriate behavior in order to receive their share of tips.
Those in favor of Trump’s proposal take a “big-picture” view of customer service and see it as coming from the entire restaurant. They recognize the valuable service that cooks and dishwashers provide to the customer. However, for Trump’s solution to work there needs to be an absolute ban on employers keeping tips.
If you work in the service industry and have questions about the proposal to make tip pooling legal, contact the Kansas City employment lawyers at Brady & Associates today. Call (913) 696-0925, or complete our online form.