New York Eliminates Tip Credit For Most Industries

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On January 22, 2020, the New York Department of Labor issued a proposed rule toward eliminating the tip credit for employees in most industries. The rule change follows a report in which the Commissioner of Labor recommended this change. Governor Cuomo endorsed the report’s findings on December 31, 2020. The new rule will modify the State’s Minimum Wage Order for Miscellaneous Industries and Occupations.

The proposed rule is subject to a 60-day public comment period. However, it appears quite likely the Department of Labor will finalize this rule before the initial June 30, 2020 partial implementation date.

Affected Employees

The New York Minimum Wage Order for Miscellaneous Industries and Occupations covers most industries. Limited exceptions include the hospitality industry (restaurants and hotels), building services, and farmworkers.

This rule change does not affect tipped restaurant or hotel workers. But it does generally encompass the following types of positions where employees commonly receive tips:

  • car wash attendants
  • nail salon workers
  • tow truck drivers
  • dog groomers
  • wedding planners
  • tour guides
  • tennis instructors
  • valet parking attendants
  • hairdressers
  • aesthetician
  • golf instructors
  • door persons

Current Tip Credit Allowance

Employers have historically been able to pay such employees below the standard New York minimum wage by relying on a tip credit allowance. To apply a portion of the employee’s tips or gratuities toward satisfying the hourly minimum wage requirement:

  • The employee’s occupation must be one in which tips have customarily and usually constituted a part of the employee’s remuneration;
  • The employer must be able to show substantial evidence that the employee has earned at a minimum the amount claimed for the tip credit allowance; and
  • Any tip credit allowance must be recorded on a weekly as a separate item in the wage record.

Where currently allowed, the amount of the tip credit available to employers depends on the level of tips earned by a particular employee. In each case, there is a “low” and “high” tip credit allowance based on the employee’s weekly average of tips received.

New Rule

Under the new rule the tip credit allowance allowed to employers under the New York Miscellaneous Industries and Occupations Wage Order would be cut in half effective June 30, 2020, Then, as of December 31, 2020, it would be eliminated. Thus, by year end, employers will have to pay full minimum wage without the benefit of any tip credit allowance.

Commissioner of Labor Investigation and Report

The New York Commissioner of Labor has the authority to declare that a policy must be eliminated as rapidly as practicable without substantially curtailing opportunities for employment or earning power. Governor Andrew Cuomo had directed the Commissioner to examine the overall impact of the minimum wage tip credits on employees and employers.  Over several years the Department of Labor held seven public hearings resulting in approximately 40 hours of testimony. The Commissioner provided the Governor his 11-page “New York State Subminimum Wage Hearing Report and Recommendations.”

The Commissioner’s Report addresses the overall intent behind the project, what action was taken by the Commissioner and his team to investigate the overall impact of the tip credit allowance, the data collected during the investigation, and his recommendations for changes moving forward.

Findings

The Commissioner’s Report includes the following findings:

  • There are at least 70,0000 workers in the state of New York that fall under the Miscellaneous Wage Order who likely receive tips.
  • 62% of these employees are female, 41% are non-white, and 27% are Hispanic or Latino.
  • Tipped workers are twice as likely to be in poverty, with a below-poverty status of 13%–more than two times that of the broader workforce–and are more likely to rely on public assistance.
  • Tipped workers outside of the hospitality industry are often confused about whether they are entitled to earn minimum wage, leading to wage theft.
  • The testimony cited lower tipping rates in miscellaneous industries due to tip pooling and a lack of broad public awareness of tipping in these types of businesses.

Conclusions

The Commissioner concluded that the existing tip credit language in the Miscellaneous Industry Minimum Wage Order:

  • allows employers in the non-hospitality industry to employ workers “at wages that are insufficient to provide adequate maintenance for themselves and their families,”
  • threatens the health and well-being of the people of this state; and
  • injures the overall economy.

Minimum Wage for Tipped Employees (Non-Hospitality)

The charts below show the 2020 minimum wage requirements for employees covered by the Miscellaneous Industries Minimum Wage Order.

NYC
Dates MW Low Tips ($2.25 to $3.64) High Tips ($3.65+)
12/31/2019 $15.00 $12.75 $11.05
6/30/2020 $15.00 $13.85 $13.15
12/31/2020 $15.00 $15.00 $15.00
LI & Westchester
Dates MW Low Tips ($1.95 to $3.19) High Tips ($3.20+)
12/31/2019 $13.00 $11.05 $9.80
6/30/2020 $13.00 $12.00 $11.40
12/31/2020 $14.00 $14.00 $12.50
Remainder of NY
Dates MW Low Tips ($1.75 to $2.89) High Tips ($2.90+)
12/31/2019 $11.80 $10.05 $8.90
6/30/2020 $11.80 $10.90 $10.35
12/31/2020 $12.50 $12.50 $12.50

In some parts of the State, the minimum wage will increase again on December 31, 2021. On that date, the minimum wage for Long Island and Westchester will rise to $15.00 per hour.

Potential Changes to the Hospitality Subminimum Wage

This rule change does not apply to individuals employed in the hospitality industry. However, it remains possible that restaurants and hotels will face similar changes in the future.  Governor Cuomo has made a priority during his term to focus on industries that rely on tips and gratuities.

Several years ago, the Labor Commissioner convened a Hospitality Wage Board to investigate modifications to the required cash wage rates and the allowable credits for tips, meals and lodging for employees in the hospitality industry. In February 2015, based on the Wage Board’s recommendations, the Department of Labor modified tip amounts and criteria for all tipped workers in the hospitality industry. These include food service workers and other restaurant and hotel service employees.

The Hospitality Wage Board found that the subminimum wage adversely affects “especially low-paid employees, women, and minorities.” It recommended “a complete elimination” of the subminimum wage in favor of “a single minimum wage [that] would simplify a complicated system.”

Recommendations for Employers in Non-Hospitality Industries

Employers (other than restaurants and hotels) currently taking advantage of the tip wage credit must evaluate their current practices and determine how they intend to comply with the planned changes. In some cases, it may not even be clear whether the hospitality or miscellaneous wage order technically applies. Given the complexity of these regulations, it is critical to carefully review and modify your operations and pay practices as necessary.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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