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May 4th, 2016
The Basics And Pitfalls For Using The Wage Tip Credit
Employers in the New York hospitality industry are required to pay their employees the no less than the statutory minimum wage. Nevertheless, hospitality industry employers may be able to utilize a credit toward the minimum hourly wage if certain “tipped employees” receive enough tips on an hourly basis and the employer has expressly notified the employee that the tip credit is being applied. The use of tip credits is governed by the federal Fair Labor Standards Act and New York State Labor Law.
• “Food service workers” are primarily engaged in serving food or beverages to customers and customarily receive tips from such customers. They include, among others, wait staff, bartenders, captains and bussing personnel. They do NOT include delivery workers. “Service employees” are not food service workers, but customarily receive tips. Both food service workers and service employees are considered “tipped employees.” A tip credit can only be applied to the wages of a tipped employee that is either a food service worker or service employee. In order for the employer to utilize the tip credit, the employee must actually receive tips. The minimum for a food service worker is $1.50 per hour and for a service employee is $1.95 per hour. Tip wages and job classifications must be calculated and substantiated internally on a weekly basis.
• In order for an employer to use a tip credit to reduce the hourly wage paid to tipped employees, the tip must be voluntary. Mandatory service charges tacked on to restaurant or banquet bills are not “tips”. In banquet and event scenarios, a mandatory service charge must be provided to the employee (although the employer does not receive a tip credit), unless the banquet or event contract clearly specifies that the mandatory charge belongs to the restaurant and not to the tipped employees.
• Currently, all tipped employees must be paid a “Cash Wage” by the employer of at least $7.50 per hour. For food service workers, the law allows a $1.50 “Tip Credit” toward reaching the $9.00 minimum wage. Service employees must receive an actual Tip Wage of at least $1.95 per hour, but, the Tip Credit used to meet the minimum wage remains at $1.50 per hour, meaning that they too must be paid a minimum Cash Wage of at least $7.50 per hour.
• Tips belong solely to the employee, not the employer, and can be used only as a credit against the minimum wage obligation owed to the tipped employee. No tips can be given, returned to or shared with the employer, but tips can be shared with other tipped employees under a valid tip pool. The employer must provide each tipped employee with notice that the Tip Credit is being utilized in paying the worker’s wages and each week separately designate the amount of the Tip Credit in the wage records.
• An employer may mandate or employees may voluntarily agree to use a tip pooling arrangement. Employers may set the percentage of the tips to be distributed to each occupation in the tip pool.
• The employer must maintain, for 6 years, records of: Tip Credits given; tip pooling; worker classifications; and the employee’s signed receipt indicating notice that the Tip Credit is being used in paying the worker’s wages.
THE PITFALLS—WATCH OUT FOR THESE
1. Owners and managers, even if they are performing the same kinds of services performed by tipped employees, are not permitted to share in the tips. Tips are for tipped employees only and owners and managers are not considered tipped employees.
2. If the actual Tip Wage does not equal at least $1.50 per hour for food service workers ($1.95 per hour for service employees), then the employer cannot use the Tip Credit to satisfy the minimum wage requirement and the employer must pay the worker the statutory $9.00 per hour minimum wage. On the other hand, if the employee earns in excess of $1.50 per hour in tips (or $1.95 for service employees), then all of the actual tips must still be paid to the employee and the employer must also pay the minimum $7.50 Cash Wage, since the Cash Wage amount can never be reduced.
3. For all hours worked in excess of 40 hours per week, employers must pay overtime at a rate of time and one-half of the regular wages. Employers are still able to use the $1.50 per hour Tip Credit. However, for overtime hours based upon the current minimum wage, employers must pay a Cash Wage of at least $13.50 so that the minimum hourly overtime rate of $15.00 is satisfied.
This article by no means covers all of the legal requirements for use of the Tip Credit, and these legal requirements are constantly changing.
Our attorneys are available to discuss these and other legal issues applicable to your business. For more information, please contact:
Richard P. Romeo 646- 843-1907 • firstname.lastname@example.org
Salvatore G. Gangemi 646- 843-1929 • email@example.com
John Paul Fulco 646- 843-1917 • firstname.lastname@example.org
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