There’s a new rule being proposed by the US Department of Labor that would make it legal for employers to keep tips as long as their staff make the minimum wage. The rationale behind the rule change is to give more flexibility to employers to pay workers who usually don’t benefit from tipping—such as dishwashers, cooks, and other back-of-house staff—by allowing for pooling and redistribution of tips.
But a recent analysis performed by the Economic Policy Institute (EPI) raises concerns over whether employers will actually do this and suggests that the new rule will result in workers losing $5.8 billion in tips, as tips are shifted from workers to employers. The EPI analysis also suggests that women will bear the brunt of this rule change.
Using a sample of American occupations that are predominantly tipped, such as restaurant servers, bartenders, gaming service workers, barbers, and other personal-appearance workers, their analysis shows that of the $5.8 billion in tips taken, nearly 80%, or $4.6 billion, would be taken from women. Women are disproportionately hit because they are more likely to be tipped workers and are more likely to earn lower wages.
On Jan. 1, 18 states raised their minimum wages as an automatic adjustment for inflation. For most workers in the tip economy, the stability and protection of a minimum wage that keeps pace with the cost of living is a more consistent and reliable income than relying on tips alone. That means that the state of Washington is now the most attractive place to be a waiter or waitress with a base hourly wage of $11.50 an hour, followed by California. (The city of Seattle goes even further with a minimum wage (pdf) of at least $14 per hour that is scheduled to rise further to $15 next year.)
Even with large uncertainty in the motivations of individual employers, this rule change is a significant shift for workers who rely on tips.
The total tipping economy, according to this methodology, is $36.4 billion per year compared with a total revenue for 2016 for firms in the full-service restaurant industry of about $280.2 billion, indicating just how much restaurant economics are a blend of tipping and regular payment. It’s not possible to know exactly how this rule change will affect workers as the outcome will be dependent on the employer’s policy. However, workers in states with no inflation-adjusted minimum wage may well be worse off.