Understanding the argument over tip sharing

A Department of Labor proposal to permit tip sharing between front-of-house and back-of-house restaurant employees has triggered an unusually rancorous public debate that will likely shape the plan—if not kill it.

Here, for the benefit of countless restaurateurs on the sidelines, is what the two sides are yelling at each other.

Who gets the money?

The measure would allow restaurants that don’t take a tip credit—largely establishments in six states—to pool gratuities and reallocate the money across the whole staff, front and back of house. Right now, tip pooling is common, but the pool money can usually be redistributed only among tipped employees, not kitchen workers, a change implemented during the Obama administration. Servers can opt to reward co-workers by tipping out, or sharing their tips with busboys, runners, bartenders and other co-workers. But it’s at their discretion.

Pro: Restaurateurs want across-the-board tip sharing reinstated. They argue that guests leave a gratuity in appreciation for the whole meal and dining experience, not just the work of the waiter or waitress. Why shouldn’t every contributing employee share in that gift?

On a more practical basis, tip sharing would help in closing a growing disparity in the pay of front- and back-of-house restaurant employees. Restaurants that don’t take a tip credit in effect pay all employees close to the same base pay. Servers get an additional 15% to 20% tacked on as gratuities, a situation that leads applicants to shun kitchen jobs for tipped positions in the dining room.

Con: Opponents say tip sharing, at least as permitted under the current proposal, would give restaurateurs a license to swipe tips for themselves. “Evidence shows that even now, when employers are prohibited from pocketing tips, many still do. Research on workers in three large U.S. cities (Chicago, Los Angeles, and New York) finds that 12% of tipped workers had tips stolen by their employer or supervisor,”states a much-cited research report from the Economic Policies Institute (EPI). The think tank estimates that proprietors are already pocketing $5.8 billion of what guests leave as tips for the staff.

“With that much illegal tip theft currently taking place, it’s clear that when employers can legally pocket the tips earned by their employees, many will,” the report concludes.

Labor advocacy groups and politicians have taken up the cry. Last week, 17 state attorneys general formally stated their opposition to tip sharing to DOL Secretary Alexander Acosta. The co-leader of the group was Xavier Becerra of California, where employers can already compel servers to share tips with what’s called the “chain of service,” or bussers and runners.

Only one of the other 16 states, Washington, does not permit employers to take a tip credit, meaning the other 15 will largely be unaffected.

‘Why not just pay up?’

Tip sharing would likely result in higher pay for back-of-house employees, an intended outcome of the measure.

Pro: Kitchen employees at Rocco’s Ristorante Pizzeria in Walnut Creek, Calif., can make $16 or more per hour, or far more than the minimum wage. Servers can collect $35 or $45 an hour, says proprietor Rocco Biale, who’s painfully aware of the pay disparity.

“All I ever hear is, ‘Pay the kitchen more!!’” he said via email.

Yet to keep his establishment afloat, that’d mean raising prices. Even if guests didn’t balk at the increases and head elsewhere, higher tickets would mean higher tips. “OK, now what? All we’ve done is widen the gap we’re trying to close,” he writes.

Letting the back of house share in tips is the way to narrow the differences without doing severe harm to any party. “Why shouldn’t they? They are not only part of the chain of service, they are the heart of the chain of service. Any restaurant employee will concur,” he declares.

Con: Restaurant proprietors and investors are merely trying to protect their incomes at the expense of employees, according to groups like Restaurant Opportunities Centers United (ROC), a labor group funded by Service Employees International Union and the National Employment Law Project (NELP). Officials of the group recently collaborated on an op-ed piece that argues the savings from tip sharing would be redirected into stock buybacks, a financial move that buoys the value of shares held by investors.

The piece cites EPI research showing that even tipped employees earn just $11.04 per hour, or too little to redistribute without hurting servers and bartenders.

And even if back-of-house staff shared in tips, “it is unlikely that those workers would take home more money, as employers would likely reduce their previous base wage and make up the difference with tips,” wrote Irene Tung, senior policy researcher at the NELP, and Teofilo Reyes, research director for ROC.

The DOL has not revealed how it intends to proceed after receiving more than 215,000 opinions on its proposal at the time the formal commentary period concluded last Monday.

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