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How the Labor Department’s New Rule Will Affect Tipped Employees

  • 06 January, 2021

The Labor Department recently finalized a rule that will greatly affect how service workers will be tipped. In the new ruling, service workers like waiters and waitresses must now share their tips with back-of-house workers that are generally never tipped, like dish washers and cooks.

The new rule came with the agreement that the expansion of the tip sharing in a restaurant will only be limited to front-of-house and back-of-house workers. Meaning that supervisors, managers, and owners will not be allowed to participate in tip pooling. Moreover, the new rule also came with the stipulation that the sharing of tips will only take place if the waiters and waitresses are receiving standard minimum wage. Thus, if waiters and waitresses are being paid the lower minimum wage then the new rule of sharing tips with back-of-house-workers will not apply.

In a press release, Cheryl Stanton, the Wage and Hour Administrator, said that this new rule will work to reduce the wage disparities between front-of-house and back-of-house workers, stating that “this final rule provides clarity and flexibility for employers and could increase pay for back-of-house workers.”

Yet, there has been heavy criticism of this new rule, especially by Heidi Shierholz, the current director of the Economic Policy Institute and former chief economist at the Labor Department. Shierholz criticizes this new rule for claiming that the solution for wage disparities is through expanding who participates in tip pooling. Even though it is true that in many restaurants waiters and waitresses generally make more than back-of-house workers, Shierholz makes it clear that both professions are still low paying jobs, thus, the new rule does not truly benefit either. “You don’t solve the low wages of the lowest paid workers by taking it out of the wages of the second-lowest paid worker. You pay them more,” said Shierholz.

Another aspect of the new rule by the Labor Department will also do away with the requirement that limited how much time a tipped employee can spend doing non-tipped work. This requirement that the new rule now dismisses is commonly known “80/20” rule because it previously mandated that tipped workers like waiters and waitresses can only spend 20% of their shift doing work that does not get tipped. Now, however, with the new rule the limit of 20% is gone and employers can increase the amount of time a tipped worker spends doing  non-tipped work.

Experts, like Shierholz, sees this as a way for employers to take advantage of their lowest paid workforce in order to increase their savings. Shierholz states that “getting rid of the 80/20 rule is another way that employers can capture some of workers income.” Shierholz demonstrates this by describing a scenario where a restaurant used to hire 3 dishwashers, yet with the new ruling employers will see that it benefits them more to now only keep one dishwasher and have their waiter and waitresses spend more time in their shifts helping wash dishes. Overall, this would only be beneficial for restaurant owners and hurt tipped workers as there are states that without tips they are payed as little as $2.13 per hour.

According to Schierholz it is estimated that the new rule will see to it that tipped workers will lose more than $700 million over the course of the year. Plus, due to the pandemic hurting restaurants more than ever , Schierholz would not be surprised if this number increases.

The new rule is said to take effect sometime in February. Yet, many are now speculating that the  upcoming Biden administration might see to it that this new rule be postponed or even completely over turned.

Source: CBSNews, NYT

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