The Labor Department proposed new rules Monday that may potentially allow an employer to keep tips given to its workers, provided it pays all of them at least the federal minimum wage, currently $7.25 an hour.
The department argues the current rules do not give enough flexibility to set workplace pay rates. It nevertheless also seeks "additional guidance" to prevent employers from using this change to undercut the minimum wage law.
Under current federal law, employers whose workers often receive tips, such as restaurants, can opt to pay those workers less than the minimum wage, provided tips are pooled and distributed among the workers. The idea is the tips at least compensate for the minimum wage.
However, such pooling is prohibited if the workers are paid the minimum wage.
In an announcement published Monday in the Federal Register, the department states there is a "strong argument" that prohibition against pooling should not apply if the workers do make the minimum wage.
"The department is proposing to rescind the portions of the current regulations that apply to employers that pay a direct cash wage of at least the federal minimum wage and do not claim a tip credit against their minimum wage obligations," the proposed rule states.
Eliminating the rule, it says, would provide "employers and employees greater flexibility in determining pay policies for tipped and non-tipped workers."
Heidi Sheirholz, a former Labor Department economist now with the liberal Economic Policy Institute, argued this change would theoretically allow employers to claim all workers' tips for themselves.
"Crucially, the rule doesn’t actually require that employers distribute pooled tips to workers," Sheirholz wrote.
However, the department states in a footnote that it's aware of potential abuses of the rule change, noting, "If an employer pays its tipped employees a direct cash wage of at least the full federal minimum wage but takes its employees’ tips to satisfy the entirety of its minimum wage obligation, there is a question as to whether the employer is circumventing the protections of [the rule]."
It asks for "additional guidance" to prevent this.