Description: On December 5, 2017, the Trump administration took its first major step towards allowing employers to legally take tips earned by their employees. The current restrictions on “tip pooling,” instituted by DOL in 2011, allow restaurants to pool the tips servers receive but stipulate that the employer may only share pooled tips with other workers who customarily receive tips, such as bussers and bartenders. Employers are prohibited from retaining any of the pooled tips themselves. But the Trump Department of Labor proposed rescinding those restrictions.

At first glance, the proposed rule seems benevolent: restaurants would be able to pool the tips servers receive and share them with untipped employees such as cooks and dishwashers. But, crucially, the new rule would mean that employers are not required to distribute pooled tips to other workers: as long as tipped workers earn the minimum wage, the employer can legally pocket their tips. And basic economic logic dictates that it is highly unlikely that back-of-the-house workers will get more pay. There is currently no limit to what these workers can be paid, so employers are already paying their non-tipped workers what they need to pay to attract workers willing to work in those jobs. Thus, if employers do share some tips with them, it will likely be offset by a reduction in their base pay, leaving their take-home pay unaffected.

Fair Economy Impact:  EPI estimates that under Trump’s proposed rule employers will likely pocket $5.8 billion per year of the hard-earned tips of their tipped workers each year — around $1,000 a year per tipped worker.  And because women are both more likely to be tipped workers and to earn lower wages, this rule would disproportionately harm them.  We estimate that of the $5.8 billion, nearly 80 percent—$4.6 billion—would be taken from women who are working in tipped jobs.

The broad economic effects of this rule are as follows: (1) tipped workers will lose $5.8 billion a year in tips, (2) the take-home pay of back-of-the-house workers will remain largely unchanged, and (3) employers will get a $5.8 billion a year windfall.