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A cocktail waitressThe proposal by the Trump administration to rollback the tip-pooling rule is now open for public comment. The Department of Labor’s formal publication kick-started a month-long period for the public to provide feedback. If successful, the proposal reverses the rule passed by the Obama administration in 2011.

The rule permits restaurant employees to retain tips without being forced to share with non-tipped workers.The Department of Labor’s proposal was triggered by the need to correct wage disparities between waiters and other restaurant staff. Enforcement of the rule was officially halted by the current administration in July.

According to federal law, employers are not allowed to pool tips if they pay the tipped minimum wage. The amount is lower than the standard minimum wage, which stands at $7.25 per hour. The Obama-era rule also prevented the practice for employers paying their staff the higher minimum wage.

Opponents of the proposal argue that the latest move by the Trump administration is aimed at targeting workers. The Labor Department’s actions in July were aimed at blocking extended mandatory overtime wages to over 4 million employees. It proceeded to counteract a rule, which was designed to compel businesses to submit detailed employee wage data. The information was supposed to be broken down by race and gender.

Vulnerability

According to Saru Jayaraman, president of the union-backed ROCU, tipped workers are vulnerable to manipulation. She is concerned that the rollback of the Obama-era laws would make the situation worse for the workers. This would lead to increased vulnerability, poverty and financial instability for a workforce that is dominated by females. The possibility of harassment may rise exponentially.

On the other hand, the Labor Department stated that it carried out a qualitative analysis. It also urged stakeholders to provide feedback regarding the economic effects of the proposal.

A growing number of industry groups are opposed to the proposal because they believe tip pooling is good for the workers. They argue that the practice addresses the compensation gap between untipped workers and waiters. The servers typically earn more as the prices of food increase. Many commentators warn that the Trump administration risks facing considerable legal challenges from rights groups representing workers.

Christine Owens of the National Employment Law Project said the department’s proposal omitted vital details relating to the amount of money that tipped workers could lose in the event that the repeal goes ahead. Meanwhile, the Supreme Court is reportedly reviewing a challenge lodged by the National Restaurant Association in association with other industry groups. The proposal was published in the first week of December on the Federal Register.

Impact

Heidi Shierholz of the Economic Policy Institute (EPI) is currently researching how much money employees would lose to their employers by analyzing information from the Bureau of Labor Statistics and data from the Internal Revenue Service. She asserts that this form of theft amounts to more than $15 billion annually. A significant number of employers are willing to pocket the tips when the law is on their side.

Labor advocates agree with Shierholz’s assertion and the impact shown by research. Christine Owens, an official of the National Employment Law Project (NELP) added her voice by saying that if businesses find it difficult to retain non-tipped employees, they should simply raise the wages. This eliminates the need for the Trump administration to rig the rules in a bid to counterbalance the pay disparities.

Rigging the rules is another way to give companies a license to steal workers’ tips. Many businesses view the tips under the proposed rule as a viable way to boost profits and subsidize the low wage model and taxes.

Shierholz also lamented the 30-day public comments period saying it is a ridiculously short window for comprehensive input by all stakeholders.

Taxes

Meanwhile our tax attorneys are doing further research as to what the tax implications of tip-pooling could be. Since most tips are left via credit card these days, it’s important to ensure that wait staff is only assuming the tax liability for the funds that they walk away with. We urge you to check back with our blog in the coming weeks as new developments arise with this story.

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