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This New Regulation Will Take Money Out of Servers’ Pockets

An amendment to the Fair Labor Standards Act could mean more tip pooling at restaurants, and could let employers off the hook for fair pay

New York City Restaurants Resume Indoor Service At 25% Capacity
A waiter wears a face mask at an outdoors restaurant
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The Department of Labor recently announced a final rule regarding tipped employee regulations, which could require servers to share tips with back of the house employees, and which loosens restrictions on the kind of work that can be performed by tipped workers in restaurants. It says that this will lead to greater freedom for workers and employers, and could lead to higher wages. But some advocates say could keep employers from paying fairly.

The new rule “removed the regulatory restrictions on an employer’s ability to require tip pooling when it does not take a tip credit and instead pays tipped employees the full minimum wage in direct wages,” allowing restaurants to implement tip pools that pay out to a wider group of non-tipped workers like cooks and dishwashers. “This final rule provides clarity and flexibility for employers and could increase pay for back-of-the house workers, like cooks and dishwashers, who have been excluded from participating in tip pools in the past,” Wage and Hour Administrator Cheryl Stanton said in a statement. It also prohibits managers from sharing in pooled tips. She argued this could reduce wage disparities by distributing tips more evenly.

However, the new rule accomplishes some of this flexibility by removing a previous “80/20” rule, which said tipped workers like servers had to spend 80 percent of their time performing tasks that earn tips. Any less and they’d have to be paid a full federal minimum wage, instead of a tipped minimum wage (as little as $2.13 an hour). Now, tipped workers can perform any amount of non-tipped work like cleaning or set-up and still make a tipped wage, as long as the employer applies tips to meet minimum wage laws.

Though the Department of Labor says this could raise take-home pay for many restaurant workers, especially back of the house workers, labor groups and activists aren’t so sure. The Economic Policy Institute says the new rule would take $700 million annually away from workers. “The new regulation from the Trump administration does away with [the 80/20] protection, replacing it with vague, much less protective language,” EPI said in a statement, arguing that the rule’s ambiguity will make it difficult to enforce, and likely inspire employers to shift work from non-tipped to tipped workers in order to save money. In a previous report, EPI estimated this rule could result in “243,000 jobs shifting from being non-tipped to being tipped.”

EPI also notes that COVID-19, as it does with most things, makes this rule even worse, “since non-tipped work now makes up a much greater share of work being done in establishments that employ tipped workers (for example, restaurants have shifted their services from dine-in to takeout).” The rule would mean those servers could still make sub-minimum tipped wages, even if they are more spending most of their time cleaning and packing take-out instead of waiting tables. And as has been established, the tips from take-out are not great.

The rule is set to go into effect in 60 days, though the Biden Administration could delay it, change it, or challenge it in court. Joe Biden has made implementing a $15 minimum wage, and eliminating a tipped minimum wage, part of his platform, which would eliminate the need for this rule at all by ensuring everyone earns a living wage without having to calculate and pool tips. Much simpler!

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