Heidi Shierholz is an economist at the Economic Policy Institute, but before that, she was the chief economist at the U.S. Department of Labor during the Obama administration. When I read some of Heidi’s jaw-dropping work on this rule change on tips the Trump administration was making, I thought even — especially — in the midst of all this attention to the GOP’s lousy tax plan, readers needed to learn about this latest effort to whack the working class. Below is my interview with Heidi.
JB: What is this new rule about tips and why is the Department of Labor proposing it?
HS: The Department of Labor’s proposed rule is about employers taking control of workers’ tips. It rescinds portions of long-standing Department of Labor regulations that prohibit employers from taking tips. Under the administration’s proposed rule, as long as the tipped workers earn the minimum wage, the employer can legally pocket their tips.
JB: They make it sound like the point of this is to share the tips with workers “in the back of the shop,” like dishwashers and cooks. But I thought that was pretty common already? Do we really need a new administrative rule for that?
HS: Right now, employers cannot require tipped workers to share their tips with “back of the house” workers like dishwashers and cooks, though voluntary tip-sharing arrangements are common. To sell this proposed rule to the public, the Trump administration is talking about it as if it is about tip-pooling, because employers could give some of the tips they take from tipped workers to back-of-the-house workers. They’re basically taking money from one group of low-income workers and trying to hide it by suggesting that some of that money could go to other low-wage workers. But in fact, the administration is giving a windfall to restaurant owners out of the pockets of tipped workers.
JB: You’ve suggested that employers could and would pocket the waitpersons’ tips themselves under this rule. What makes you say that?
HS: Evidence shows that even now, when it is illegal for employers to pocket tips, many still do. Research on workers in three large U.S. cities (Chicago, Los Angeles and New York) found that 12 percent of tipped workers had tips stolen by their employers or supervisors. With that much illegal tip theft taking place, it’s clear that when employers can legally pocket the tips, many will. Further, basic economics tells us that back-of-the-house workers are very unlikely to get more pay overall. The fact that workers are in those jobs means employers are already paying them what they need to pay them to get them in the current environment. If employers do share some tips with them, it will likely be offset by a reduction in their base pay. Here’s the bottom line on the economics of this rule: (1) tipped workers will lose out, (2) the take-home pay of back-of-the-house workers will be largely unchanged, and (3) employers will be enriched.
JB: Do you have any sense of the amount in play here?
HS: We estimate that under this rule, employers would pocket $5.8 billion in tips earned by tipped workers each year. This is 16 percent of the estimated $36.4 billion in tips earned by tipped workers annually — roughly $1,000 per tipped worker on average each year. I should add that this is a conservative estimate. We were careful not to overstate the amount of workers’ tips that will be pocketed by employers.
JB: What does the Department of Labor say about this possibility?
HS: DOL acknowledges that employers could legally pocket tips under their proposed rule, stating that the rule “rescinds those portions of the 2011 regulations that restrict employer use of customer tips [emphasis added] when the employer pays at least the full Federal minimum wage.” In a deeply unusual move, DOL did not provide an estimate of the amount of tips that will be transferred from workers to employers (which is one reason we did so). This is unusual because agencies are required by law as a part of the rulemaking process to assess all quantifiable costs and benefits to the fullest extent possible. DOL could have produced an estimate; at EPI, we produced an estimate in less than two weeks using routine procedures and taking a methodological approach that is in exactly the same spirit of estimates the Department of Labor produces all the time [Note: Shierholz was formerly chief economist for the DOL]. Why didn’t DOL produce an estimate? To ask the question is to answer it; any good-faith estimate would have shown this rule will result in a substantial shift of tips from workers to employers and the DOL under President Trump — and Labor Secretary Alexander Acosta — is trying to hide that fact.
JB: What happens next? Can people voice their concerns about this rule change?
HS: This is a proposed rule. Anyone can submit a comment about the rule, and the Department of Labor is required to read them before they decide what the final rule will look like. The rule is open for public comment until Feb. 5.
Further, states can move to increase the protections in their state. Our estimate of the amount of tips that would be pocketed by employers as a result of this rule would have been significantly higher if it weren’t for the fact that many states have laws on the books that prohibit employers from pocketing workers’ tips. Those laws will not be preempted or superseded by the Trump rule, so tipped workers in those states are protected from this rule. Other states can and should follow suit.
JB: You have been tracking these sorts of behind-the-scenes attacks of labor standards. This tip rule is part of a larger pattern, no?
HS: When Trump was running for office, he made big claims about how he was going to fight for workers. But since in office, he has consistently moved against the interest of workers in favor of corporate interests — by rolling back important worker protections, advancing nominees to key posts with records of enabling the exploitation of working people, pushing for the dismantling of Obamacare, fighting for a tax bill that overwhelmingly favors the wealthy, etc. In the case of the tip rule, Trump has delivered a huge gift to the owners of big chain restaurants, for whom getting their hands on workers’ tips has been a holy grail for a very long time. In Donald Trump, they finally found a president who will do their bidding.