Waiters, bartenders worry that proposed rule to pool tips will hit pay

A Labor Department proposal to let businesses pool tips at restaurants and bars is meant to help “back of the house” workers like cooks and dishwashers, but bartenders and waitresses worry that it will mean a severe hit to their main source of income instead. (Photo by Lennart Tange/Creative Commons)

WASHINGTON – The tips Jonathan Teslevich earns are “crucial to my life,” which is why the Phoenix bartender worries that a new Labor Department rule on tip pooling could cost him the majority of his income.

The proposed rule change would reverse decades of departmental policy by letting employers pool tips received by any workers who are paid the federal minimum wage of $7.25 an hour.

The goal is to help pay “back of the house” workers, such as cooks and dishwashers, but it does not require employers to share tips once they collect them.

“This system would remove nearly 81 percent of my earnings from my control … earnings I poured effort and professionalism into,” Teslevich, a bartender at Zinc Brasserie in Phoenix Sky Harbor International Airport, said in an email.

An Economic Policy Institute report estimated that the change, in enacted, could cost tipped workers nationwide from $520 million to as much as $13.2 billion. Arizona would take the fourth-biggest hit, according to the report, with workers there losing $28.8 million to $703.6 million a year.

But supporters say the change will give restaurant owners a greater ability to compensate less-visible workers who also contribute to the customer experience.

“It’s definitely going to create more flexibility to businesses” to pay those unseen workers, said Dan Bogert, chief operating officer of the Arizona Restaurant Association.

Heidi Shierholz thinks the pooled money is more likely to end up in the pockets of the owners than with any cooks.

“You can apply very basic economic logic to reveal what they will do with the money,” said Shierholz, senior economist and director of policy at the Economic Policy Institute.

She said there is “no reason to believe back-of-the-house workers will see their pay go up,” because restaurants are already paying those workers what they have to from a profit-maximization point of view.

When it proposed the change in December, the Labor Department said it would give employers “the freedom to allow sharing of tips among more employees” and “help decrease wage disparities between tipped and non-tipped workers.”

The change would reverse a 2011 Obama administration rule that codified a department interpretation of tip-wage regulations in effect since 1966. It said tips were the property of the person who received them and that the only people who could be included in any pool were employees who regularly earned more than $30 in tips a month.

The proposal drew more than 375,000 comments before the public comment period closed last month.

“There is no ambiguity on this point … the rule would give employers full control over tips (as long as they pay the full minimum wage),” Shierholz said in an email. “They could do whatever they want with them.”

For Teslevich, it’s a matter of trust between front-of-house and back-of-house workers, and between employees and management.

“How is the tip amount divided, who decides?” he asked. “If this were to occur, then there would be massive conflict in the workplace.”

Since 2016, Teslevich said, there hasn’t been any money left in his paycheck after taxes and benefits are deducted.

“All my hourly wage pays my Medicare, Social Security and a portion of my state and federal income tax,” he said. “Tips pay my mortgage, my car loan, my bills.”

He’s not alone, said Rachel Sulkes, an organizer for UNITE HERE Local 631, a union that represents hospitality workers.

“These tips are the only way for these tipped employees to make the bulk of their income,” she said.

But Bogert downplayed the impact of the change, noting that only a fraction of all restaurants will be able to use it. To take advantage of the new rule, he said, businesses have to opt out of what’s called the tip credit, which lets restaurants pay less than minimum wage because worker incomes are supplemented by tips.

The period for public comment ended early last month and a final decision on the rule is expected this spring. In the meantime, workers like Teslevich wait to see what will happen with the “tips that lay the foundation of my and my family’s life.”

Shierholz said servers should be leery of letting restaurant owners have more power over their tips.

“They wanted to get their hands on that (money) for a long time,” she said, “and they finally have an administration that will give it to them.”