How a federal proposal could affect millions of dollars in Texas workers' tips

A U.S. Department of Labor proposal that could change how workers in Texas and the rest of the nation receive tips is facing greater scrutiny after a report revealed the department withheld an unfavorable economic analysis. 

Released last December, the proposal would give employers greater freedom to decide where their employees' tips go. Businesses like restaurants could share "front of the house" workers' tips with “back of the house” workers, such as dishwashers and cooks, or they could pocket employees' tips for themselves. The proposal would only apply to employers who pay a full minimum wage of $7.25. The Trump administration has said the plan is an attempt to help decrease wage disparities between tipped and non-tipped workers.

But a Bloomberg BNA article says that Labor Department leaders scrapped an economic analysis of the proposal that revealed workers could lose billions of dollars under the new tip proposal.

Under the plan, Texas could see $676.3 million of tips transferred from employees to employers' pockets in a year, according to the Economic Policy Institute, a left-leaning think tank. But Texas groups disagree on the estimated impact of the proposal.

Some U.S. businesses, including those in Texas, have a choice on how to pay tipped workers. One is to pay tipped workers the federal minimum tipped wage of $2.13 — as long as employers opt for a "tip credit" in which employers promise that the money made in tips will amount to minimum wage or higher. A second choice is to pay the workers the federal minimum wage of $7.25 and allow them to also take tips. California, Nevada, Oregon, Washington, Montana, Alaska, Wisconsin and Guam are required by their respective states to pay tipped employees the full state minimum wage plus tips.  The new proposal would provide employers that pay workers full minimum wage an option to take and share their tips. 

Richie Jackson, CEO of the Texas Restaurant Association, argued that the Labor Department plan wouldn’t affect most Texas workers; he believes the majority of Texas employers use a tip credit.

"It's really a non-issue in Texas," Jackson said. “The rule will not be something that is applicable to most employers who employ tipped workers in Texas."

Ed Sills, a spokesman for the Texas AFL-CIO, said tips should be the sole “property of the people that own them,” and he challenges the argument that the proposal is supposed to close the wage gap between tipped and non-tipped workers.

“The wage inequality gap between front of the house and back of the house workers can be addressed by employers,” Sills said. “The way to do it is to pay the back-of-the-house workers more than they do."

A Texas Workforce Commission spokeswoman said the agency does not track how many businesses in Texas use a tip credit.

According to the Bloomberg BNA story, the U.S. Department of Labor's internal analysis showed that employees' tipping losses under the proposal reached into the billions and department officials told staff to change the data methodology to "lessen" the impact. Although later calculations showed reduced tip losses, senior officials were still uncomfortable with including the numbers in the public proposal, the article added. The department received White House approval to publish the report on Dec. 5, withholding the economic analysis.

In January, the Labor Department issued a 30-day public comment period, allowing people to express their opinions on the proposal. As of Thursday, the public has five days left to respond by the Feb. 5 deadline. Currently, the proposal has over 147,300 formal comments. The department says it will evaluate the responses before making a decision. 

The new tipping proposal would disproportionately affect women, the Economic Policy Institute said in its report. Of the $5.8 billion nationally in tips per year they estimate would be shifted from workers to employers, $4.6 billion — nearly 80 percent — would be pulled from the pockets of women working tipped jobs, the report says. These high numbers for women can be attributed to the fact that women are more likely to both be tipped and earn lower wages.

As the debate continues to unfold, Texas service workers are monitoring and expressing concerns about unintended consequences.

Tim Rinkerman of Austin said the tips he gets between his two jobs at a coffee shop and a restaurant are vital. Under the new proposal, he’s worried some employers might not be honest if allowed full control of tips.

“When you're making minimum wage, it's kind of hard to get by," said Rinkerman. "It’s not cool [for businesses] to have the ability to pocket tips."