February 13, 2018 Liz Borkowski, MPH 2Comment

Back in December, the Department of Labor published a notice of proposed rulemaking for a rule to make tips the property of employers rather than the tipped employees. In an unusual move, they neglected to include any quantitative estimates of how this change would affect workers’ or businesses’ incomes. Four days before the comment deadline, Bloomberg BNA’s Ben Penn reported that the Department had undertaken a quantitative analysis — but requested a revised analysis and then kept it out of the NPRM altogether because the findings were unfavorable.

Tip pooling — or taking
Under the Trump administration’s proposal, employers that pay tipped workers the minimum wage (as opposed to paying an hourly wage as low as $2.13 and counting on tips to make up the difference) could take ownership of tips given to workers. The NPRM suggests that employers would then pool those tips and share them out among employees who don’t normally receive tips (e.g., dishwashers in restaurants), but as the Economic Policy Institute points out, the proposal doesn’t actually require that employers redistribute all this tip money back to low-paid workers.

Tipped workers — who are disproportionately women, and women of color — rely on tips for a large share of their income are already three times as likely to live in poverty as the rest of the US workforce. If the goal is to increase earnings for dishwashers and other low-paid employees who don’t receive tips, the most effective mechanism for accomplishing that would be to pay them a fair wage. If the goal is to improve working conditions for employees who currently rely on tips, paying them one fair wage instead of hoping they make enough in tips would also work — and would have the added benefit of reducing the financial pressure to tolerate sexual harassment and assault.


A missing quantitative analysis

The NPRM doesn’t put any numbers on the likely impacts on workers. It states:

The Department is unable to quantify how customers will respond to proposed regulatory changes, which in turn would affect total tipped income and employer behavior. The Department currently lacks data to quantify possible reallocations of tips through newly expanded tip pools to employees who do not customarily and regularly receive tips. The Department presents a primarily qualitative approach to assessing the benefits and transfers of the new rule.

Here’s what the Economic Policy Institute’s Heidi Shierholz and colleagues think about that:

Tellingly, DOL did not provide an estimate of the amount of tips that will be shifted from workers to employers—even though it was legally required, as a part of the rulemaking process, to assess all quantifiable costs and benefits “to the fullest extent that these can be usefully estimated.” EPI easily produced an estimate using a methodology that is very much in the spirit of estimates the Department of Labor regularly produces; DOL obviously could have produced an estimate. But they couldn’t both produce a good faith estimate (which would necessarily have shown a substantial shift of tips from workers to employers) and maintain the fiction that this rule is primarily about tip pooling, so they opted to ignore legally required steps in the rulemaking process.

EPI estimated that if DOL’s proposal were implemented, it would shift $5.8 billion in tips from workers to employers every year — and 80% of that money would come from women.

On February 1, four days before the February 5 comment deadline, Bloomberg BNA’s Ben Penn reported that DOL staff had indeed conducted a quantitative analysis, but had been instructed to exclude it from the NPRM:

Senior department political officials—faced with a government analysis showing that workers could lose billions of dollars in tips as a result of the proposal—ordered staff to revise the data methodology to lessen the expected impact, several of the sources said. Although later calculations showed progressively reduced tip losses, Labor Secretary Alexander Acosta and his team are said to have still been uncomfortable with including the data in the proposal. The officials disagreed with assumptions in the analysis that employers would retain their employees’ gratuities, rather than redistribute the money to other hourly workers. They wound up receiving approval from the White House to publish a proposal Dec. 5 that removed the economic transfer data altogether, the sources said.

That the analysis does not appear in the NPRM jeopardizes the integrity of the rulemaking process and public trust that government-funded analysis will be accessible to the public.

Calls for investigation and withdrawal

U.S. Representative Bobby Scott (D-Virginia), ranking member of the House Committee on Education and the Workforce, and colleagues immediately sent a letter to Labor Secretary Alexander Acosta requesting copies of all analyses completed as part of this rulemaking. Senator Patty Murray (D-Washington), the ranking member of the Health, Education, Labor & Pensions committee, asked the DOL’s Inspector General investigate the tip rule process. She wrote, “The potential inclusion of misleading statements in the NPRM raises serious questions about the integrity of the rulemaking process and whether DOL has deliberately tried to manipulate the process for the benefit of corporations and businesses. If these reports are correct, it appears DOL may have deliberately misled the public in its NPRM.”

On February 5, the DOL Office of the Inspector General notified DOL’s Wage and Hour Division that it will be undertaking an audit of the tip rule process.

Many of the more than 375,00 comments submitted in response to the NPRM (including one I submitted for the Jacobs Institute of Women’s Health) object to the rule’s process as well as its substance. Comments from state attorneys general express concerns about the legality of DOL’s apparent burying of unfavorable analysis findings, Penn reports:

Chief legal officers from 17 states—led by California, Illinois, and Pennsylvania—wrote to the DOL in strong opposition to the agency’s proposal to undo an Obama-era rule that restricted tip-pooling arrangements. Their letter, submitted on the final day of public comment, expresses outrage over the revelation in Bloomberg Law’s Feb. 1 report that the DOL shelved an internal analysis on the rule’s projected impact on worker tips.

“If recent press accounts are true that the Department conducted but refused to disclose an analysis of the economic impact of this NPRM, the public’s opportunity to provide meaningful comment on the proposal has been undermined in violation of the” Administrative Procedure Act, the attorneys wrote.

Many of those expressing concerns about the rule’s process have called for its complete withdrawal, given an apparently compromised process.


A disturbing pattern

This incident is part of a disturbing pattern of the Trump administration sidelining science.  Recent examples include halting work on a study on potential health risks from Appalachian coal mining sites; barring tax analysts from analyzing the full impact of a $1.5 trillion tax plan; and misrepresenting the extensive research on contraception and unintended pregnancy in a rule allowing employers to stop covering contraception. Current and former DOL employees helped bring the problem with the tip rule to light, but what I’d really like to see is Congressional Republicans exercising their oversight capabilities and making it clear that these kinds of efforts to halt or ignore analyses for non-scientific reasons aren’t acceptable.

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