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News from EPI Correction—Employers would pocket $5.8 billion in workers’ tips under Trump administration rule

The findings in this report have been corrected from its release on December 12th, due to a revised analysis of state laws prohibiting employers from pocketing workers’ tips. The initial analysis had not included Washington and Montana as states with more protective state laws. More protective laws would not be preempted by the proposed rule, thus reducing the rule’s impact in such states. The addition of Washington and Montana as more protective for workers reduces the total amount of tips transferred from workers to employers from the original estimate of $6.1 billion to $5.8 billion. See the methodological appendix for more details.

The Department of Labor has extended the period through which it is accepting comments on the proposed rule until February 3, 2018—EPI is encouraging people to submit their comments today.

On December 5th, the Trump administration took a step toward allowing employers to legally pocket the tips earned by the workers they employ. The Department of Labor released a proposed rule that would allow restaurants to take the tips that servers earn and share them with untipped employees like cooks and dishwashers. However, the rule does not actually require that employers distribute pooled tips to workers. Under the administration’s proposed rule, as long as tipped workers are paid the minimum wage, employers could legally keep the tips they collect.

EPI economists Heidi Shierholz, David Cooper, Julia Wolfe, and Ben Zipperer estimate that if this proposed rule were finalized restaurant owners could pocket between $523 million  and $14.2 billion—with $5.8 billion being their best estimate—in tips earned by tipped workers each year.

It is highly unusual that DOL did not provide its own quantitative estimate of the amount of tips that will be transferred from workers to employers. The report notes that the requirements agencies must follow as a part of the rulemaking process are very clear, and among them is that agencies must assess all quantifiable costs and benefits “to the fullest extent that these can be usefully estimated.”

“One plausible explanation for why DOL left out the required estimate is that any good-faith estimate would have shown this proposed rule will result in a substantial shift of tips from workers to employers,” said Shierholz. “It appears that the Trump administration is willing to ignore legally-required steps in the rulemaking process in order to hide the fact that they are proposing a rule that will put workers’ hard-earned tips into the pockets of employers.”


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