On December 5, the Trump administration took its first major step toward allowing employers to legally pocket the tips earned by the workers they employ. The Department of Labor (DOL) released a proposed rule that would allow restaurants to take the tips that servers earn and share them with untipped employees such as cooks and dishwashers.1 But, crucially, the rule doesn’t actually require that employers distribute “pooled” tips to workers. Under the administration’s proposed rule, as long as tipped workers earn minimum wage, employers could legally pocket those tips. Evidence shows that even now, when employers are prohibited from pocketing tips, many still do. Research on workers in three large U.S. cities (Chicago, Los Angeles, and New York) finds that 12 percent of tipped workers had tips stolen by their employer or supervisor.2 Further, recent research shows that workers in restaurants and bars are much more likely to suffer minimum wage violations—meaning that they receive less than the applicable minimum wage—than workers in other industries. For tipped workers, some of these minimum wage violations occur when an employer confiscates tips.3
With that much illegal tip theft currently taking place, it’s clear that when employers can legally pocket the tips earned by their employees, many will. And although the bulk of tipped workers are in restaurants, tipped workers outside the restaurant industry—such as nail salon workers, casino dealers, barbers, and hairstylists—could also see their bosses start taking a cut from their tips.
We estimate that under this rule, employers would pocket $6.1 billion in tips earned by tipped workers each year. This is 16.9 percent of the estimated $36.4 billion in tips earned by tipped workers annually. A detailed methodology describing how we arrived at that estimate is provided as an appendix, including a discussion of the uncertainty around the estimate. We believe employers will pocket between $563 million and $14.2 billion in workers’ tips annually, with $6.1 billion being our best estimate.
DOL acknowledges that employers could legally pocket tips under their proposed rule, which rescinds portions of its long-standing tip regulations, including current restrictions4 on employers keeping tips. DOL states, “The proposed rule rescinds those portions of the 2011 regulations that restrict employer use of customer tips when the employer pays at least the full Federal minimum wage.”5 It is thus deeply unusual that DOL did not provide a quantitative estimate of the amount of tips that will be transferred from workers to employers under the proposed rule, given that they are required to do so by law.
The requirements that agencies must follow as a part of the rulemaking process are very clear, and among them is the requirement that agencies must assess all quantifiable costs and benefits “to the fullest extent that these can be usefully estimated.”6 There is no question that DOL could have produced an estimate if they had wanted to; in this report, we have shown that it is possible to arrive at an estimate using the same data researchers routinely use in similar contexts and taking a methodological approach that is in precisely the same spirit of estimates the Department of Labor undertakes on a regular basis.
One plausible explanation for why DOL left out the required estimate is that any good-faith estimate would have shown this rule will result in a substantial shift of tips from workers to employers. It appears that the Trump Department of Labor is willing to ignore legally required steps in the rulemaking process in an effort to hide the fact that they are proposing a rule that will put workers’ hard-earned tips into the pockets of employers.
