Tip Pooling is Back — Here’s What It Means for Your Restaurant

In a move that’s setting off alarm bells among restaurant employee advocates, the U.S. Department of Labor is seeking a rollback of Obama-era tip-pooling regulations under the Fair Labor Standards Act that prevent traditionally untipped workers, such as cooks and dishwashers, from being included in tip pools.

The new rules, outlined in a DOL notice posted on Dec. 4, would allow employers to collect and distribute tips at their discretion, as long as employees receive the equivalent of $7.25 per hour, the full federal minimum wage.

The DOL cited pay disparities between front- and back-of-the-house workers as the primary reason for overhaul. While the new system may seem like a better deal for kitchen staff, critics say it would do nothing to prevent tip skimming by unscrupulous employers.

‘My fear of trying to implement tip pooling throughout the restaurant would be a mass exodus.’ – Adam Penn, co-owner of Veggie Galaxy

The proposal is supported by the National Restaurant Association, an advocacy group for restaurant owners, and opposed by the Restaurant Opportunities Centers United, which represents restaurant employees.

The NRA has long been pushing for the change, arguing that the tip-pooling rule instituted by Obama hurt back-of-the-house staff by preventing them from receiving tips. Employee advocates argue that wages will decrease if owners are allowed to share in tip pools.    

“The number one issue, and we’ve seen this happen, is that employers will keep tips if they are legally allowed to do so,” says Saru Jayaraman, ROCU co-founder. “If you want to be able to share tips with the back of the house, that’s great, but there’s no reason that management should have any kind of control or ownership of those tips.”

The Economic Policy Institute estimates that under the new rule, employers would pocket $5.8 billion earned by tipped restaurant workers each year.

Diyari Vazquez, counsel for Michelman & Robinson, a Los Angeles-based law firm representing restaurant and hospitality industry clients, says that while she believes the rollback would help increase wages for back-of-house employees, it should include a provision to prevent tip skimming. “I think ultimately, if this regulation goes into effect it should be supplemented to indicate that this change does not allow owners and managers to take employees’ tips,” she says.    

With already-thin profit margins, many restaurant owners say they simply cannot afford to increase workers’ wages. Some, including Danny Meyer of New York-based Union Square Hospitality Group, have addressed the issue by eliminating tipping and raising menu prices, so that all employees can be fairly compensated. Two Massachusetts restaurants, including Tres Gatos in Boston and Veggie Galaxy in Cambridge, have opted to add an “administrative” fee to customers’ bills that goes directly to kitchen staff.

 

In a letter posted on the company’s website, Veggie Galaxy owners Adam Penn and Kathy Tanner explain that, as of Sept. 17, 2017, all customer checks will include a 3 percent “close-the-gap” fee to benefit traditionally untipped workers. 

‘There’s no reason that management should have any kind of control or ownership of those tips.’ – Saru Jayaraman, co-founder of the Restaurant Opportunities Centers United

Since the program was launched, Penn says, back-of-house staff have seen hourly pay increases between $2.10 and $2.70. This gives kitchen staff a raise without reducing servers’ wages in the process. “My fear of trying to implement tip pooling throughout the restaurant would be a mass exodus of servers if they were to experience a significant pay cut.”

Penn is also wary of allowing owners to take a share of tips. “I can see this being reasonable if the owner is actively working back or front of the house,” he says, “but there also seems to be potential for significant abuse.”

The DOL is accepting public comments on its Notice of Proposed Rulemaking until Jan. 4, 2018. To submit comments, visit https://www.regulations.gov/document?D=WHD-2017-0003-0001