Labor Department says waiter tips belong to bosses – new rule could transfer $5.8 billion from servers to employers

by Deborah Nelson

The Labor Department is poised to let bosses keep wait staff tips, if servers make a minimum wage base pay.

The Federal minimum wage is $7.25 per hour, but restaurants can pay tipped employees less, as long as tips make up the difference between the lower wage and the minimum wage.  The difference is called a “tip credit.”  The state minimum wage, $8.25 per hour as of January 1, will apply in Florida.

Currently, bosses cannot keep server tips, regardless of servers’ basic salary or how much they receive in tips.

They can force “regularly tipped” employees to share tips in a tip pool, but the pool cannot include “back room” employees or bosses.  It must equate to at least the minimum wage for each employee sharing it.

The U.S. Department of Labor, December 4, proposed a regulation to let restaurant owners take and keep tips from employees who make at least a Federal minimum wage base pay.

DoL officials suggest bosses might use the new income to share with “back room” employees like dishwashers and cooks.  The new rule, however, does not specifically say tips must go to employees.  Employers could keep the money.

The Economic Policy Institute estimates the new rule would transfer $5.8 billion in tips from waiters to bosses.  That represents about 16 percent of the total $36.4 billion in annual tip income, nationally.

DoL says Federal law prohibiting bosses from taking employee tips only references workers who do not make a minimum wage base pay, and is thus “silent” on the question of servers who make a minimum wage base before tips.  The Obama administration, in 2011, interpreted that law to mean employers cannot take any tips, regardless of server base pay.

Now, DoL says the law was only intended to apply to employees who do not make a base minimum wage, and for whom employers fulfill the difference with tip credits.

Congress could change the law to clarify that it prohibits bosses from taking any tips, regardless of base pay.  They could also change the law to clarify that any seized tips must be pooled among employees instead of going to bosses.

The Department of Labor is accepting comments on the proposed new rule until February 5.  The comment form can be accessed HERE.

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