By Bloomberg editors
This is the time of year when workers expect even the stingiest boss to show a little heart. A proposal by the U.S. Labor Department, however, would make it easier for millions of restaurant owners to indulge their inner Scrooge.
This month the department served notice that it intends to once again allow the practice of tip-pooling, which has been prohibited since 2011. That’s fine so long as the change is accompanied by a ban on management taking a cut. Diners tip for food and service, not to help owners defray costs.
The numbers aren’t small: There are 4.3 million “tipped” workers in the U.S., 60 percent of whom are in the restaurant sector, and one estimate is that their employers would keep nearly $6 billion of the $36.4 billion in tips they earn each year. The government hasn’t provided its own analysis of the effect of the change.
The case for changing the rule is that tip-pooling can help close the wage gap between “front of the house” workers, such as waiters and bartenders, and “back of the house” employees, such as cooks and dishwashers, who earn far less. Under this new proposal, employers would be allowed to collect and redistribute tips — so long as all employees are paid the federal minimum wage of $7.25. (In a majority of states, employers can pay front-of-the-house workers below the minimum wage, if their tips make up the difference.)
This argument works only if managers actually do redistribute, however. Restaurant owners say that if they had access to tip revenues, they could more easily expand their businesses and hire more workers. That may sound sensible — but it’s hard to argue that the existing ban on tip-pooling has crimped growth in the restaurant industry. The number of new restaurant jobs created in 2017 exceeds those in health care, construction or manufacturing. Job creation in the sector has outpaced the rest of the economy every month for the last seven years.
For restaurant owners that object to restrictions on their ability to collect tips, there’s another option: eliminate tipping altogether. More than 200 restaurants in the U.S. have started building service costs into the prices they charge consumers — giving owners more predictability and control over revenues, which helps offset higher labor costs.
A world without gratuities is still long way off. In the meantime, a common-sense principle should apply: What workers earn should be theirs to keep. That’s no humbug.
The above editorial appears on Bloomberg View.