Ask anyone who has worked in the service industry and they’ll tell you how hard it can be. According to the National Restaurant Association, the restaurant industry employs approximately 14.7 million people in the United States. Many of those employees work at shockingly low hourly rates and depend on tips to survive. Those employees could be in for added struggle if the current administration succeeds in implementing the proposed Department of Labor regulations.
Currently, the maximum tip credit an employer can claim under the Fair Labor Standards Act (FLSA) is $5.12 per hour. In other words, because the federal minimum wage is just $7.25 per hour, a tipped employee could be paid as little as $2.13 per hour. The idea behind the “tip-credit” rule is that the employee is able to make up the difference between the lowered hourly rate and the federal minimum wage rate by receiving tips from customers. This rule has resulted in a significant amount of litigation because when all is said and done, the employee doesn’t always make enough in tips to bring their hourly rate above $7.25 per hour for all hours worked. In some cases, the employee may be spending significant time during their shift performing non-tip generating activities like cleaning or rolling silverware, which prevents them from earning tips. In any case, the bread and butter of a tipped employee’s earnings are their tips.
Given outside factors, such as the rising cost of living or increasing state minimum wage rates, many employers have scrapped the tip credit altogether. Instead, they pay the employee at the regular minimum wage rate. Generally, tips received can’t be shared with other employees that are not regularly tipped employees. However, the FLSA does not address the tip sharing rules for employees that are not subject to a tip credit. This has led many employers to argue that tips should be used for “topping up” the pay of their untipped “back of the house” workers, such as dishwashers.
The Obama administration prohibited the practice of sharing tips with employees that do not regularly receive tips. However, under the Trump administration, the Labor Department has proposed rescinding that rule, which would allow restaurants to share wait staff’s tips with back-of-the-house workers. The administration has argued that it will equalize pay between front of the house and back of the house workers. However, there remains a concern that the tips are withheld by the employer, not paid to the dishwashers.
If the rule passes, it could result in massive changes to the service industry. Tips serve not only to compensate the server, but also to motivate them to provide the customer with the best possible experience. Take tips out of the equation or diminish their importance, and the server that greets you with a smile and kindly laughs at your not-so-funny jokes, might not feel so inclined to do so.
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