DOL Proposes Rule Change Regarding Tips

Huh.

Published on the Federal Register on Tuesday, the new rule would rescind a regulation enacted during the Obama administration that mandates employers distribute tips to their tipped employees. Under the new rule, restaurants would be able to pool tips from servers and share them with untipped employees like dishwashers.

Heidi Shierholz, senior economist and director of policy at the Economic Policy institute (EPI), points to research that shows illegal wage theft exceeds $15 billion every year. “It seems obvious that when employers can legally pocket the tips earned by their employees, many will do so,” she said.

The DOL argues that tip pooling helps reward those who don’t normally get tips. Groups like the Oregon Restaurant and Lodging Association assert that this rule“would help decrease wage disparities between front-of-house and back-of-house employees.”

But labor advocates say the likely outcome would be employers pocketing those tips.

I’ll admit that I did not know that tip pooling was illegal. I see it occasionally when I’m out and about and it seems like a rather sensible practice in some cases. Take a car wash where they have people vacuum and dry your car… there are often several people who touch your car and you want to tip them all. But usually the customer only comes into contact with the first and last person. Tip pooling makes sense to make sure that all of the workers are tipped for delivering good service.

While I understand the worry about employers pocketing tips instead of distributing them, it seems to me that it’s a marginal risk. First, it is illegal and I’m certain that disgruntled employees who are getting screwed would have no problem reporting it – as they should. Even under the proposed rule, the employer can collect the tips to redistribute them, but they can’t keep the tips for themselves. It might be difficult to prove theft for cash tips, but in the age of ubiquitous cameras and credit cards, it wouldn’t be that hard to bust an employer who is stealing tips.

Second, if an employer steals their employees tips, they will have a very difficult time keeping employees. The costs for the employer would far outweigh whatever few bucks they get from stealing tips. Employees will quit and new ones have to be recruited and trained. Disgruntled employees will provide poor service and might take it into their own hands to steal back their lost tips. Etc. Only a stupid employer would steal their employees’ tips. I’m sure it happens, but stupid employers don’t generally stay employers for long.

The fears expressed regarding the proposed rule change seem overstated.

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