New Trump rule could cost waiters more than $700 million in lost wages, allowing employers to take more of their tips to pay other workers

GettyImages 1225593339 — A new Trump administration rule could cost tipped employees more than $700 million in lost wages each year.
Joe Raedle/Getty Images

A new rule published by the Department of Labor on Tuesday would allow restaurant owners to take employees' tips to pay "back-of-the-house" workers, such as cooks and dishwashers.
An analysis by the Economic Policy Institute found that change could cost workers more than $700 million in lost wages.
The regulation also allows employers to required tipped employees to perform more "non-tipped" labor, such as cleaning.
"It's really, really clear this is about the interests of corporate executives and shareholders," Heidi Shierholz, an economist at EPI, told Business Insider.
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A new regulation rolled out in the final days of the Trump administration will allow restaurants to pull tips from their waitstaff to pay cooks in the back, putting more cash in the pockets of ownership while forcing front-of-the-house staff to do more work for less money.

Employers, to this point, have been allowed to pool tips and share them among employees who typically receive them; for example, servers giving a share of their earnings to hosts and bussers. The 148-page regulation put out Tuesday by the Department of Labor would expand that, allowing restaurants to pay the wages of prep cooks and dishwashers with money earned by those waiting tables.

The rule also does away with a so-called "80/20" rule: previously, tipped employees - who can earn as little as $2.13 an hour in wages from their employer - could not be asked to spend any more than 20 percent of their shift performing non-tipped work, like rolling silverware or cleaning the workplace. The new standard is "reasonable time" spent doing such things.

"It's totally ambiguous and makes it extremely difficult to enforce," Heidi Shierholz, director of policy at the center-left Economic Policy Institute, told Business Insider.

The Trump administration's stated purpose for rule is equality.

Cheryl Stanton, administration of the wage and hour division at the Department of Labor, said the rule "could increase pay for back-of-the-house workers, like cooks and dishwashers… reduc[ing] wage disparities among all workers who contribute to the customers' experience."

But this achieved not at the expense of those running the business but at the cost of others employed there.

In a 2019 analysis, EPI estimated that allowing employers to pocket workers' tips would save the former more than $700 million a year - and cost the latter the same amount. That, and doing away with the "80/20" rule," would also encourage those employers to rely more heavily on tipped labor. Why pay cleaning staff the federal minimum wage of $7.25 an hour when tipped employees, who cost a fraction of that, can be asked to perform the job instead?

"It's really, really clear this is about the interests of corporate executives and shareholders. Like that is what's driving this," Shierholz said.

"If there really was a strong interest in reducing inequality and raising the wages of the lowest-paid workers, they would be pushing tooth and nail to raise the minimum wage," Shierholz added.

Indeed, "there is a direct way to do this," Shierholz argued, "instead of saying, 'Oh, we're going to raise the wages of the lowest-paid workers by taking from the wages of the second-lowest paid workers.'"

It is notable that it was not advocates for labor but rather their bosses that lobbied for the change.

"The foodservice industry supports the department's proposed rule," lawyers for the Restaurant Law Center and the National Restaurant Association said last year when the change was being developed. They billed it as an act of deregulation - and end to bureaucrats "trying to micromanage restaurant work."

The new rule, however, does not take effect for another 60 days - that is, until the next administration. It is possible, but not clear, that President-elect Joe Biden and his team could postpone its implementation while working to rescind it.

A spokesperson for the Biden-Harris transition team did not return a request for comment.

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