The Trump administration is under fire for proposing a Labor Department regulation that could result in hotel and restaurant employers dipping into the tips customers leave for their employees, depriving the nation’s 14 million hard-working restaurant workers of significant amounts of money each year. Critics are right: This would be a bad policy. Unfortunately, the administration may have the law on its side, which means that the law, not just the regulation, is what really needs to change.
The federal Fair Labor Standards Act (FLSA) essentially gives employers a choice of what to pay their waitstaffs: either the minimum wage or more, or a much lower “tipped minimum,” as long as tips make up the difference.
What the FLSA did not specifically cover, however, was what employers who paid wait staff the full minimum wage could do with tips. Some wanted to use the money for other things, for instance topping up the pay of their untipped “back of the house” workers, such as dishwashers. And so, in 2011, the Obama administration issued a regulation explicitly banning that: Even if you paid tipped workers full minimum wage, they kept all the tips.
Now comes the Labor Department proposal to rescind the rule, thereby allowing restaurants to share the waitstaff’s tips with back-of-the-house workers, thus equalizing compensation all around.
That sounds nice; another way to look at it, though, is as an invitation to a restaurant industry facing tight labor markets and higher state minimum wages to tap a fresh stream of unrestricted cash for all kinds of business purposes. Wage theft is a chronic problem in the industry already.
Maybe someday restaurants and similar businesses will settle on a compensation model that does not rely on tips. Until then, the principle that tips belong to the people for whom the customer intended them should be upheld.