Proposed Labor Department rule on tips would let employers pocket billions, liberal think tank says

A proposed change by the Labor Department to the rules regarding the minimum wage and tipping would allow employers to keep almost $6 billion in tips provided to workers, a liberal think tank said Tuesday.

"Under the administration’s proposed rule, as long as tipped workers earn minimum wage, employers could legally pocket those tips," said analysts with the Economic Policy Institute. "We estimate that under this rule, employers would pocket $5.8 billion in tips earned by tipped workers each year."

Under current federal law, employers such as restaurants whose workers often receive tips can opt to pay them less than the minimum wage provided that the tips are pooled and distributed among the workers. The idea is that the tips compensate for the minimum wage. Such tip pooling is prohibited if the workers are paid at least the minimum wage.

The Labor Department said last week that there was a "strong argument" that employers should be allowed to pool tips, even if the workers do make the minimum wage. Doing that would give "employers and employees greater flexibility in determining pay policies for tipped and non-tipped workers," the department argued. It has solicited public comments on the matter, the first step in rewriting the rules.

"This rule is out for comment. All stakeholders are encouraged to provide data regarding the economic effects of the proposal," said a Labor Department spokesman.

The Economic Policy Institute pointed to studies in Chicago, Los Angeles, and New York that found that 12 percent of tipped workers had their tips taken by their employer when they didn't qualify for the pooling exception. "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 analysts said.

Liberal groups are trying to rally opposition to the change. On Monday, Democrats argued that the administration was not giving critics enough time to respond.

• Update: This article has been updated to reflect a new estimate from the Economic Policy Institute of $5.8 billion from $6.1 billion. The think tank said it revised its analysis to more accurately reflect state laws.