Should employers own employees’ tips?

Q: Should the government permit employee tips to be managed by employers
to portion to employees, and/or keep the money for themselves?

By Sarah Sidlow

Imagine you work in a restaurant waiting tables. You make the federal minimum wage of $7.25 an hour, plus tips. Because of an Obama administration regulation, your tips are your own property. That means your employer can’t collect your tips and distribute them to any “back-of-the-house” workers, like cooks or dish washers.

But that may soon be changing—in December, the Trump administration announced a proposal to undo portions of that 2011 regulation, paving the way for employers to use workers’ tips, essentially, however they want.

Quick explainer: workers who typically receive tips, like restaurant servers, are usually paid an hourly rate far below the federal or state minimum wage. The thinking is that the tips received generally make up the difference. Those who don’t receive tips, like dish washers, are usually paid the required minimum wage. The new proposed policy would essentially give employers a choice: pay everyone at least minimum wage, and then use the pool of tips how you’d like, or continue to pay employees based on the traditional model, and allow them to keep their own tips.

So who would be affected? The Labor Department estimated that the policy change would affect about one million waiters and waitresses, as well as over 200,000 bartenders. But other tip-earning industries, like beauty salons, would also be impacted.

Supporters of this new approach to tipped wages, including many in the restaurant industry, argue that the change would go a long way in alleviating the inherent wage gap between customer-facing employees and those in the back. And that’s a big deal—that wage gap is often credited with the high turnover rates and morale issues that plague restaurants and other service businesses.

Plus, supporters argue, sharing tips just makes sense—service comes from the whole house, they say, so the whole house should reap the rewards.

Because delicious food affects how much you tip, and so does a dirty plate; and the server isn’t responsible for either one.

But critics are condemning the proposed policy as a gateway to legalized wage theft. That is to say, if tips are no longer the property of the employee, they become the property of the employer. That leaves it up to the boss to determine whether they will distribute the tips evenly between the front of the house and the back, or whether that extra cash goes right back into their pocket.

Apparently, wage theft (see also: failure to pay overtime and improperly counting hours) and tip stealing is already a common problem in restaurants and other service-related industries where workers rely on tips. Giving employers increased control over employee tips, critics argue, may not be a step in the direction toward leveling the playing field. Moreover, according to a study by the Economic Policy Institute, employers are statistically unlikely to use the money (we’re talking about an estimated $5.8 billion in lost wages) to compensate other workers better.

And then there’s this issue: We don’t actually know what the costs and benefits of this new rule would be, because the Labor Department hasn’t disclosed it. That’s a problem; and it’s especially suspicious because an executive order dating back to the ’90s typically requires that kind of analysis for any proposed regulation that would have an economic impact of at least $100 million. This conspicuously absent information is leading critics to wonder how many supporters this policy would have if they had all of the information.

Remember the dishwasher!

If waiters hog the tips, what about the guys
in the kitchen?

By Ron Kozar

Question.  Who should decide whether and how tips are divided among the waitress, the busboy, and the kitchen help?  Answer.  Not the government.

Betcha didn’t know that tipped employees make three times more today than they did in 1986, and that restaurant workers who are not tipped, such as the cook, the dishwasher, and the janitor, make only one fifth more than they made back then.  Each of them is part of the team, but the one who interacts directly with the customer is the one who gets all the credit and collects all the tips.  In some upscale coastal haunts, waiters and bartenders can take home more than $100,000 a year.  You won’t find any dishwashers in that league.

For reasons best known to himself, Obama wanted to prohibit employers to correct that imbalance.  But, there being no law on the books enabling him to do so, Obama deployed his Führerprinzip and simply made one up.  And so it was, in 2011, that Obama’s Department of Labor stuck the country with a regulation dictating that only the employees who interact with customers get to share in the tips.  The line-cooks and the ladies who run the vacuums, we assume, didn’t have as well connected a lobbyist as those hundred-thousand-a-year bartenders did. 

Anyway, making up new rules just because you’re the president is not how laws are made in this country, so when the courts got through laughing, several of them struck down Obama’s regulation as unlawful.  The only court that upheld it was California’s ever-flaky Ninth Circuit.  The stage was thus set for a Supreme Court appeal in which Obama’s diktat was sure to be toast.  Trump, however, decided to save the courts the trouble, repealing Obama’s lawless regulation and thus restoring the rules as they existed before 2011.

But when Trump is involved, even the humblest enactment makes liberals wet their pants.  Thus, opponents of repeal are portraying it as some sort of sweat-shop revival.  Repealing Obama’s rule, shrieked Jane Fonda, will enable the boss to appropriate the entire tip for himself.  And Newsweek, once a news-magazine for grown-ups, recently carried the headline “Trump wants you to tip restaurant owners, not servers.”  Bosses, however, were not appropriating their employees’ tips before 2011, so there’s no reason to think they will do so now.  Sure, every boss is a greedy mofo, but a slave-driving restauranteur who grabs all the tips for himself won’t be able to find waiters willing to work for him.  And diners wouldn’t patronize his place anyway.  Would you?

Critics of Trump’s repeal of Obama’s rule are also squawking about the Department of Labor’s failure to publish any research about the economic impact that repeal will have.  What they don’t tell you is that, when enacting the reg in the first place, Obama’s DoL didn’t publish any such research either.  Regardless, the actual impact is small.  The repeal affects only those eateries that pay their servers the federal minimum wage or higher.  Waitresses whose base wage is below the minimum will get to keep all their tips, as they always have.  Only seven states require employers to pay the minimum wage to tipped employees, and Ohio is not one of them. 

The frenzy of misinformation over this illustrates why the government should not impose inflexible norms upon workplaces.  You find tipped employees in greasy neighborhood diners, nationwide chains, white-linen restaurants, and nouveau cuisine eateries that give you little dollops of food on big, square plates.  You find tipped employees in coffee shops, pizza parlors, and bars and drinking establishments of every description.  The only solution that the blunt instrument of government can provide is to jam this whole, enormous variety into a single, one-size-fits-all straightjacket. 

Why not just let the owner decide how tips will be managed under his own roof, and let each waitress there decide whether to stay or to go someplace where tips are managed differently?  We need a government to play the role of night watchman, but we don’t need a government to tell consenting adults what terms and conditions they can or can’t contract for in the workplace.  The oft-repeated liberal justification for regulating workplace issues such as tipping is that employees have no bargaining power.  As a lawyer, however, I can tell you that my clients’ biggest headache is finding employees who are competent and who show up when scheduled.  Such employees cannot simply dictate their own terms, but they won’t have trouble finding somewhere else to work if their present boss is an SOB. 

Rules like Obama’s remove such matters from free workplace bargaining, throwing them down instead as prizes to be fought over by the politically connected.  In the bureaucratic maneuvering that ensues, owners are always sure to be well represented, as are the lobbyists for millions of waiters, waitresses, and bartenders.  But the dishwasher won’t have a chance.

Servers are the Tip of the Spear

Tipping rewards excellent service

By Don Hurst

I am not a fan of the Department of Labor’s proposal to allow restaurants to distribute tips as they see fit. Sure the move could address disparity between the front and back staff, either through splitting tips so they all make a little bit extra, or by owners pocketing the tips so no one makes more. Perhaps the plan will herald a new era of peace and harmony between servers and kitchen, but more likely it will result in poor customer service.
When I tip at a restaurant I’m specifically rewarding the service the waiter provided. For background, let me say that the Hurst family is very high maintenance. My wife is a vegetarian with gluten and lactose sensitivities. My kid is pathologically picky. If the choice is between starvation and green stuff touching his nuggets, he will get his heart right with Jesus and choose death. I’m such a beer snob that hipsters think I’m trying too hard. I ask stupid stump-the-chump questions like what’s the density of that porter, is it a true import or brewed in America with a foreign label, and more obnoxious stuff. If my sister or my in-laws are involved then we become a server’s living hell.
But we tip well.
I love tipping because I love free market capitalism. Tipping is one of the purest forms of the greatest economic engine in the world. Work hard and hustle and you earn more than the competition that scrapes by on the bare minimum. Tipping, like free market capitalism, rewards merit and effort. If you want to make that 20% then smile, keep that coffee cup topped off and be patient when we’re running through our lists of substitutions.
Tipping encourages exceptional customer service. Sure, there’s that rare individual who truly enjoys working on their feet for six hours, dealing with abuse from demanding customers and treating your free-range grass-fed tilapia as more important than a denuclearized North Korea. But let’s be real – those smiles are fake, and if it wasn’t for the glimmer of hope of a 20% tip then you might be wearing that tilapia.
It’s a hard job. You have to be a saint to do it well, and maybe even more than a saint. I don’t know that many saints who were waiters. I think there’s a reason that Jesus was a carpenter and not a restaurant worker. The temptation to spit into an unruly customer’s food may have been too much.
Insuring that everyone receives the equal amount of tip money regardless of merit undermines the entire institution. A rude waiter who mocks my pronunciation of beignet could pocket the same cash as the server who exchanges my Pad Thai spicy level four for the spicy level two free of charge even after I told her I’m a big boy and I can handle big spice.
Under this plan, incompetent waiters have less incentive to perform well because they will earn more money than they deserve by taking from the better workers. There’s already a system like that. It’s called communism and it stifles individual effort while it encourages laziness. Tip sharing may work in places like China and the Soviet Union, but this is America. America works best when we reward our workers based on their merits. Everyone receiving the same amount of money for differing levels of quality is not the America I fought for.
I understand that dishwashers and cooks want a bigger piece of the pie, but taking from the front line staff isn’t the way to do it. Bad waiters can ruin a restaurant. According to Entrepreneur Magazine, customer service is the most important metric when it comes to developing return business, and found that exceptional service when the kitchen messes up actually increases customer satisfaction more than a perfect dining experience.
I’ve eaten at restaurants that prepared food that made my taste buds swoon in ecstasy, but inattentive or rude service will keep me from ever returning. Conversely, I’ve eaten some bad food but returned because the front line staff fixed the issue. The dishwasher messed up, and left dried tuna chunks on my fork, or the cook warmed up raw meat and tried to pass it off as well done? How the server handles those problems will determine if the experience was positive or negative. The opposite isn’t true. I’ve never been treated like garbage by wait staff but returned because the glasses were super duper clean or that chicken was the moistest bird I’ve ever put in my mouth.
Bad customer service will sabotage the best efforts of the back line staff. If guests do not enjoy their experience they won’t return. No customers equals no money. No money means no paychecks for cooks and dishwashers.
I don’t want to shortchange the efforts of back line staff. What they do is also important, but they can let their guard down and complain about the customers or just blow off steam. Servers have to always be on. They have to pretend to enjoy dealing with someone who claims they can tell the difference between locally sourced carrots and those that come from California, all while not earning a lot of money, working evenings and weekends and dealing with aching calves. To do all that and still make me feel like I’m not a burden deserves a little something extra.

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Reach DCP editor Sarah Sidlow at

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