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Payments

An illustration of reporter Courtney Vinopal's headshot.

Courtney Vinopal

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 on Sept. 30 explaining how federal labor law applies to specific workplace situations. Among the letters was a document addressing the issue of tip-pooling, which allows tipped service workers to share their tips with one another in a “pool.”

In this opinion letter, the DOL stated that front-of-house oyster shuckers, despite not regularly receiving tips directly from customers, can be included in a tip pool.

Why some front-of-house workers count as tipped employees. 

The DOL issued its letter in response to a question from a seafood restaurant that asks its servers to contribute to a tip pool that includes colleagues who aren’t usually tipped directly by customers, including the oyster shuckers in question.

Federal law allows employers to pay tipped workers as little as $2.13 an hour provided they earn at least $7.25 an hour—the federal minimum—when tips are included. They receive a tip credit of up to $5.12 an hour for doing so.

Under the Fair Labor Standards Act (FLSA), employers may also require these workers to contribute to a tip pool provided included members are “limited to employees who customarily and regularly receive tips,” James R. Macy, acting administrator for the DOL, wrote in the letter.

The DOL determined the oyster shuckers in question would fall under that category given they often interact with customers. Such interactions may include “sharing and detailing oyster offerings to customers, making suggestions to customers regarding the oyster offerings, and fielding questions about the different options,” the DOL said. It compared the position to that of a sommelier who explains wines to customers and offers wine pairings—another profession the agency has determined is “a customarily and regularly tipped occupation.”

A dishwasher who shucks oysters and peels shrimp from time to time in the restaurant’s kitchen, however, wouldn’t fall under this category, as the worker “lacks sufficient interaction with the customers who leave tips, a portion of which are subsequently contributed to a tip pool,” Macy wrote.

HR teams can take this letter into consideration when considering which of their organization’s employees may be included in a tip pool.

While the document aligns with previous DOL guidance regarding tipped occupations, attorneys with law firm Littler Mendelson 

 regulations will differ when determining which employees are eligible for the “No Tax on Tips” credit 

 of occupations that will be eligible to claim this credit, the Treasury Department said dishwashers and cooks would qualify, even though such workers have not historically been considered tipped employees by the DOL.

It’s worth noting that a number of states require workers to pay a higher tipped minimum wage than the federal government, and some jurisdictions 

 the tipped minimum wage altogether. HR teams should comply with the most restrictive statutes in such cases.

Legislative Lowdown recurring feature illustration

DOL troubleshoots tip pools in recent opinion letter 

Front-of-house oyster shuckers can be included in tip pools because they regularly interact with customers, an official with the agency said.

Legislative lowdown: DOL addresses tip-pooling in first batch of opinion letters

When fast-food workers began walking off the job to demand a $15-an-hour minimum wage in 2012, McDonald’s was at the center of the fight. The fast-food chain resisted workers demanding higher pay for a number of years, though ultimately capitulated, saying it 

 policies to increase the minimum wage at the state or local level.

Given the chain’s previous opposition, it was somewhat surprising to see McDonald’s recently call on its restaurant-industry colleagues to pay their workers 

McDonald’s opposes low wages for restaurant workers. 

In early September, McDonald’s CEO Chris Kempczinski 

 against the tipped minimum wage, which allows establishments like restaurants and bars to pay their tipped workers as little as $2.13 an hour, as long as they earn the federal minimum of $7.25 when tips are included. This practice creates “an uneven playing field,” Kempczinski told CNBC.

The issue even led McDonald’s to pull out of the National Restaurant Association, the lobbying organization that opposes movements like Fight for $15.

McDonald’s, of course, has a dog in the fight, as it’s not able to take advantage of the tipped minimum wage. Meanwhile, competitors like Chili’s are able to save labor costs by paying their workers below the federal minimum, and in turn offer prices on par with McDonald’s, the Wall Street Journal 

How tipped wage policies are affecting HR. 

McDonald’s is the biggest fast-food chain to put its thumb on the scale with regards to the tipped minimum wage, but the debate has already prompted policy changes at the state and federal level—with implications for HR teams.

Both Democrats and Republicans embraced proposals to end taxes on tips during the 2024 presidential campaign, and a version of this policy ended up in the Republican tax bill that was 

. Starting next year, workers in certain jobs can deduct up to $25,000 from their tipped income each tax year. It’s unclear how widespread an effect the policy will have on tipped workers, as many don’t earn enough income to pay federal taxes, but it’s 

reporting requirements for employers (a draft version of a W-2 form for 2026 includes sections for businesses to report “qualified tips” and a code for a worker’s “tipped occupation”).

The “no tax on tips” proposal was a “red herring” to cater to low-wage workers, said Saru Jayaraman, president of the advocacy organization One Fair Wage. Nevertheless, “it at least elevated the question of, what are we going to do for this massive workforce that is the lowest paid workforce in America and is living on tips?” she said.

Several jurisdictions—including California, Washington state, Chicago, and DC—have already enacted laws to phase out the tipped minimum wage. Jayaraman expressed optimism that McDonald’s could spur more companies to speak out about paying workers a full minimum wage.

When asked about how paying a full minimum wage has impacted businesses, Jayaraman pointed to Denny’s. In 2021 its CFO admitted on 

 that raising the minimum wage to $15 an hour in California had been good for the chain’s bottom line.

Another factor HR teams may have to consider when looking to raise tipped workers’ wages is just 

 the practice of tipping has become in US establishments.

“I don’t see us getting away from a tipping culture. It seems to be continuing to build,” said Erica Brune, CEO and co-founder of Lever1, an HR outsourcing firm based in St. Louis. Brune said she hasn’t seen many of Lever1’s clients in the hospitality industry move to raise base pay and phase out tipping, but rather focus on how to offer a competitive salary when taking both hourly pay and tips into account.

She noted that when employers do decide to raise wages, it’s hard to walk back that decision.

“When you change a wage base, you can’t step it back,” she said.

McDonald’s puts its thumb on the scale regarding the minimum wage

McDonald’s recently came out against the tipped minimum wage, which allows competitors to cut into its profits. 

The call to end the tipped minimum wage is growing louder. Here’s what that means for HR.

Should you hear your colleagues in HR talking about peanut butter, you might be disappointed to find out they’re not actually planning to restock the office pantry.

Instead, they may be referring to the decidedly less tasty practice of compensation planning. In the total rewards world, “peanut butter” pay can refer to giving workers flat raises across the board, in the same way you might spread the snack evenly across a piece of toast.

 it would switch to the peanut butter approach, giving all salaried employees in North America the same 2% raise, rather than allowing managers to grant merit raises at their discretion. The shift is part of a broader turnaround effort that necessitates cost containment, the coffee chain said.

Granting flat raises isn’t unusual when companies are dealing with tighter budgets, experts told HR Brew, but employers should clearly communicate the strategy behind this decision, and consider its implications for performance management.

US employers expect to give employees a 3.5% raise, on average, next year, according to a 

 from Payscale. A majority of those who expect to scale back their compensation budgets cited concern about “future economic conditions or business performance.”

Such trends may play into employers’ decision to grant flat raises, said Megan Nail, VP of the total rewards practice at insurance broker NFP. “When budgets come down…it lends itself towards companies thinking more across the board, because they have fewer dollars to work with,” she said.

There are some upsides to the peanut butter approach, Nail said. Flat raises are easier to administer than those granted under a pay-for-performance system, and may be perceived as more fair by employees. That being said, HR leaders should clearly explain the rationale if their organization is changing its approach, she added, and be honest about “what they don’t know right now.”

When talking about decisions surrounding pay, “it’s helpful for an organization to be clear about the hows, whats, and whys,” said Ron Seifert, senior client partner at Korn Ferry. If a company is facing operational challenges, investing in other parts of the business, or navigating an uncertain economic environment due to tariffs, those details can help them shape their messaging.

HR teams, according to multiple professionals we spoke to, could consider how different members of their workforce may be affected by pay decisions. Lower-paid employees are particularly sensitive to inflation, so a flat raise may be important when you consider their ability to cover costs of everyday items like food or gas, said Seifert.

On the other hand, a potential negative effect of granting flat raises is that top performers may become dissatisfied with how they’re rewarded.

To ensure top performers are still recognized, HR could consider rewarding them with non-monetary benefits, such as career development initiatives, specialized mentorship, as well as access to leadership or new technologies, Seifert said.

Diane Burton, who directs the Institute for Compensation Studies at Cornell University’s School of Industrial and Labor Relations, said she’s seen “lots of experimentation on the benefits side” to this end. During lean years, HR teams may put “increasing emphasis on learning and growth opportunities, and developmental opportunities.”

Such efforts may help mitigate the effects of peanut butter pay. “If you spread peanut butter too thin, you actually don’t taste it, and it isn’t very satisfying,” Seifert noted.

Why companies like Starbucks are switching to “peanut butter” pay 

Employers may decide to grant all workers the same raise when budgets shrink, but doing so may have implications for retaining top performers.  

The costs and benefits of awarding flat raises during down years

When pay transparency laws started going into effect about five years ago, employers had to decide what level of transparency was right for their organizations.

 much information—beyond the stated requirements of publishing expected salary ranges for open roles—could prompt employees to become dissatisfied with their pay, and lose motivation in their jobs.

 suggests that learning what the typical employee earns at a firm actually boosts pay satisfaction among average rank-and-file workers.

The research analyzed public firms’ compensation and benefits ratings on Glassdoor in the years after they were required to disclose how CEO pay compares to the median employee pay due to an SEC rule that took effect in 2018.

Disclosing the CEO-to-employee pay ratio resulted in a “significant increase” in pay satisfaction at these firms, according to the study. After one year the average compensation rating rose from 3.31 to 3.39. The average work-life balance rating on Glassdoor also rose, from 3.23 to 3.28.

But HR leaders shouldn’t take this to mean that workers are happy to find out what the CEOs of their companies make, said Lisa LaViers, an assistant professor of accounting at Tulane University's A.B. Freeman School of Business, who co-authored the research. CEO 

 by an eye-popping 1,085% from 1978 to 2023, and the growing gap between CEO pay and worker pay has been a 

 of union campaigns in industries like automotives and entertainment.

Instead, the disclosure of what the median employee earns seems to be driving the uptick in workers’ satisfaction with their pay, she explained. While public companies have long had to disclose what they pay their CEOs, workers only started finding out about median employee pay once the 2018 mandate took effect.

That doesn’t mean they didn’t have their own ideas about how their pay compared to peers prior to the SEC rule. Most workers 

, LaViers told HR Brew, and they are likely to make assumptions about how their firm pays its workers from other sources.

“You’re developing ideas of what [peers] are being paid,” she said. These ideas are likely to come from the Internet—sites like Glassdoor and Indeed include salary data for the companies they track, and many firms 

 for open roles. Workers’ perceptions about pay may also be shaped by their colleagues’ behavior, LaViers added.

“So companies are letting you develop your ideas of pay based on the Mercedes you see in the parking lot, because that’s what gets your attention; information that you see on Glassdoor that may or may not be accurate,” she said.

When workers were given information about rank-and-file pay for the first time in 2018, “that median employee pay was so much lower than any other reference point employees ever had that it made them happier,” LaViers said.

These findings may be helpful for HR teams at organizations that are weighing whether to make additional salary information available to their employees. Most employers are complying with laws requiring them to include salary ranges in their job postings, but sharing more than that with the workforce is a different question, HR Brew 

When considering how transparent to be about pay, “employers should try to get an understanding of what their employees think already and what information they have access to,” LaViers said. “If you know that your employee is getting on Glassdoor and seeing salaries for their role that are not accurate or are inflated, this might be a place where more transparency is better, because you’re correcting the misunderstanding.”

Of course, if additional transparency will reveal that your company is paying employees unfairly, that is unlikely to make workers more satisfied with their pay. Compensation experts typically recommend employers perform a compensation analysis to correct for any unexplained inequities before going public with salaries.

“If you don’t know if your pay is fair or unfair, find out,” LaViers recommended. “There are lots of ways of doing benchmarking.”

A Dollar Sign on top of a stack of money encased in a glass case and stacks of gold coins outside of it

CEO-to-worker pay ratio disclosures made employees happier

Employers may fear that disclosing too much information about how they pay will cause workers to become unhappy, but recent research dispels that.

Disclosing CEO-to-worker pay ratios made employees happier with their compensation

A policy that was embraced by both the Democratic and Republican candidates during the 2024 presidential campaign made it into the final version of the recently enacted tax and budget bill, and will affect employers in the service industry starting next year.

The provision in President Donald Trump’s “One Big Beautiful Bill,” called “No Tax on Tips,” will allow eligible tipped workers to deduct up to $25,000 from their tipped income each tax year from 2025 to 2028.

The Internal Revenue Service (IRS) recently published a draft W-2 form taking this policy change into account, and said it would publish a list of occupations that may be eligible to take advantage of the tax break in early October.

How taxes will change for tipped workers in 2026. 

Federal law allows employers to pay their tipped workers as little as $2.13 an hour provided that amount, combined with tips, comes out to $7.25 (the federal minimum wage).

Workers that receive at least $20 a month in tips have to report these earnings to the IRS, and pay taxes on them if their gross income reaches a certain level. President Trump 

 this practice, as did his Democratic opponent, Kamala Harris.

The final “No Tax on Tips” provision that made it into the Republican tax bill will allow workers in jobs that “customarily and regularly received tips” on or before Dec. 31, 2024 to claim the deduction. Workers who report $150,000 or more in gross income will see the deduction reduced and ultimately phased out.

The policy is unlikely to affect the entire tipped worker population (roughly 2.5% of all workers), as more than one-third (37%) of workers 

tax for this reason, according to The Budget Lab.

What this means for employers with tipped workers. 

 published by the IRS on Aug. 15 includes a section for employers to report employees’ “qualified tips” using the code “TP,” as well as a place to report an employee’s “tipped occupation code.”

It’s not yet clear what type of work will fall under the provision. The IRS is required to publish a list of occupations that fall under the “customarily and regularly received tips” category by Oct. 2.

Additionally, the IRS is expected to give employers additional guidance on how to calculate the amount of “qualified tips” a worker earned. For the purpose of this deduction, tips paid voluntarily via cash or credit card should count, but it’s 

 whether automatic charges such as mandatory gratuities will fall under this category.

 it would provide “transition relief” to workers claiming the deduction, as well as employers, in light of the new reporting requirements.

The draft W-2 also includes modifications linked to additional provisions from the tax bill that are set to change the way employers report on workers’ earnings.

 for a tax deduction on their overtime pay, so businesses will need to report overtime compensation if they have workers that qualify for that deduction. Additionally, employers will have the option to 

 on behalf of their employees’ kids starting next year—a benefit that will also need to be reported on a W-2 form.

IRS’s draft W-2 for 2026 incorporates “No Tax on Tips”

Employers with tipped workers are set to see reporting requirements change as a result of a new tax deduction, but some details are still being worked out.  

Legislative lowdown: IRS publishes draft W-2 for 2026 incorporating “No Tax on Tips”

Arkansas is the latest state to regulate earned-wage access (EWA), a benefit that allows workers to tap into money they’ve earned ahead of their scheduled payday.

, which was signed into law by Arkansas Gov. Sarah Huckabee Sanders on Mar. 20, applies to EWA providers, but not the employers that work with them. It requires EWA providers to offer at least one option at no cost, disclose all fees associated with their services, and allow consumers to cancel the services without being charged.

EWA providers are also barred from sharing any portion of fees, tips, or gratuities with employers under the Arkansas law.

Some 12% of employers offer EWA, according to a 2023–2024 report from Sapient Insights Group, with organizations such as the 

 touting the benefit. Supporters of the benefit have suggested it can have 

 on the workforce, boosting businesses’ ability to recruit and retain talent, as well as foster loyalty among workers.

The benefit has drawn scrutiny from consumer advocates, however, due to fees that employees can incur from using the services. A Consumer Financial Protection Bureau (CFPB) 

 of eight companies partnering with employers on EWA found workers often incur fees to get their wages early, with more than 90% of workers paying at least one fee in 2022 when their employer didn’t cover them.

 that stipulated many EWA products fall under the Truth in Lending Act, which requires lenders to disclose charges and fees associated with a loan. Members of the fintech industry pushed back on the rule, with one EWA provider, DailyPay, arguing its offering “does not have the hallmarks of a loan,” such as origination fees, late fees, or reporting to consumer credit agencies, HR Brew previously reported.

, but it’s likely President Donald Trump’s administration will take a different approach to regulating EWA. During his first term, the CFPB issued an 

 that indicated EWA products could operate without being subject to lending laws, so long as they’re offered at no cost to employees.

 to enact legislation regulating EWA, in addition to California, Nevada, and Wisconsin. Utah’s legislature 

The Arkansas law doesn’t go as far as some other states have gone in regulating EWA; Nevada, for example, requires providers to be licensed in the state before offering EWA to residents. It also 

 EWA providers to adhere to lending laws.

DailyPay voiced support for its decision to classify the benefit as a “financial product,” rather than a type of credit. “This is a victory for businesses in Arkansas that can benefit from utilizing earned wage access solutions,” Ryan Naples, VP of public policy, said in a statement.

Arkansas enacts law to regulate earned wage access 

Benefits that allow workers to access their paycheck early are growing in popularity, but some consumer advocates have voiced concerns about costs employees can incur. 

Legislative lowdown: Arkansas enacts law to regulate earned wage access 

As companies rolled out DEI goals following protests against racial injustice that occurred in 2020, some sought to track their progress by tying these goals to employees’ compensation.

Linking DEI metrics to executive compensation became a common practice in the private sector, with more than three-quarters of S&P 500 companies doing so as of 2023, according to 

from The Conference Board and ESGAUGE. In some cases companies made DEI a KPI, or key performance indicator, by asking employees to detail how they contributed to these goals in annual performance reviews, possibly affecting their compensation.

 in legal hot water, but they’re under much more intense scrutiny now due to President Donald Trump’s crackdown on DEI. On Mar. 17 Equal Employment Opportunity Commission (EEOC) Chair Andrea Lucas 

 questioning US law firms about their DEI practices, and specifically asked them if they’d tied “partner or associate compensation to DEI or diversity efforts.”

The administration’s focus on this practice is prompting some employers to be more cautious about tying compensation to DEI, HR and legal experts say, but recent data indicates companies haven’t dropped these policies altogether. Firms may still evaluate employees’ contributions to DEI, but the language and metrics they use to describe these goals will likely change.

Andrew Turnbull, co-chair of global employment and litigation practice at law firm Morrison Foerster, said he’s seen some companies move away from tying DEI to compensation in recent years over fears it could provide fodder for litigation.

While “tying somebody’s performance metrics to achieving certain DEI objectives in and of itself may not be an unlawful practice,” he said, combining this with certain “aspirational targets or goals” could be used to bolster claims that an employer implemented hiring quotas, in violation of Title VII of the Civil Rights Act of 1964. A plaintiff might argue, for example, that the act of paying managers to meet certain objectives for hiring more women or people of color into their firm serves as evidence of discrimination, whether direct or indirect.

“We are certainly advising companies to take a very hard look at those practices and determine whether they want to continue those or not,” Turnbull said

The DEI backlash began well before Trump took office, and already Turnbull said some companies have moved to “rebrand” or “derisk” their practices to lessen their legal exposure.

So while companies may still see a value in DEI, and finding a way to incorporate it into their employees’ goals, there’s a chance they’re calling it 

 at this point. McDonald’s, for example, no longer has “aspirational representation goals,” but still ties executives’ pay to “efforts that drive employee engagement and values, including inclusion,” Fortune 

“Organizations can still go about doing this, but they have to now be very careful about what the goals are,” said Ifedapo Adeleye, a professor and faculty director of Georgetown’s HR Management program, who specializes in compensation and total rewards, as well as DEI. He echoed Turnbull’s concern about tying compensation to DEI programs with quotas or direct targets. “The consensus around it is that most [organizations] will be adjusting some of the metrics that they use” to track progress against their goals.

Still, Adeleye pushed back on the notion that organizations are abandoning DEI entirely.

If executive compensation plans are any indication, these goals aren’t going entirely by the wayside yet. As of 2024 just under half (48%) of S&P 500 companies still incorporated ESG and DEI metrics into their CEOs’ compensation plans, 

If managers and executives believe there’s a business case for DEI, they’ll remain committed to these principles regardless of whether it’s tied to their bonus, and no matter how it’s branded, said Andy Behar, CEO of shareholder advocacy organization As You Sow.

“If you’re a manager judged by performance of your division, then you’re going to have a diverse team,” he posited.

DEI Coin surrounding by traffic cones. Credit: Anna Kim

Will employers stop linking pay to DEI amid Trump’s DEI crackdown?

The Trump administration’s focus on this practice is prompting some employers to be more cautious about tying compensation to DEI, but recent data indicates they haven’t dropped these policies altogether. 