New York’s Acting Commissioner of Labor Rejects Two-Tiered Tip Wage System for Hospitality Employers

February 24, 2015Alerts Labor & Employment Alert

On February 24, 2015, New York’s Acting Commissioner of Labor accepted four of the five recommendations to the Hospitality Wage Order that had been issued by the Hospitality Wage Board on February 2, 2015. The accepted recommendations will significantly decrease the tip credit that hospitality employers can take towards their minimum wage obligations to tipped employees, thereby increasing the minimum cash wage that must be paid. However, the Wage Board had recommended that hospitality employers be offered the opportunity to take a larger tip credit when the combined wages and gratuities received by their tipped employees exceeded 150 percent of the applicable minimum wage for New York City employers and 120 percent of the applicable minimum wage for employers outside of New York City. This two-tiered proposal was rejected by the acting commissioner.

In its February 2, 2015, Report and Recommendation to the Commissioner of Labor, the Hospitality Wage Board made the following recommendations:

  • That the tip credits and minimum cash wages for all tipped workers in the hospitality industry be uniform so that the same rates will apply to food service workers and other service employees.
  • That the minimum cash wage that must be paid to tipped employees be increased to $7.50 per hour effective December 31, 2015.
  • That in the event New York City enacts a higher minimum wage, the minimum cash wage that must be paid to tipped employees be increased by $1.00 to $8.50 per hour effective on the date that such separate minimum wage rate for New York City takes effect.
  • That a review be conducted addressing whether the tip credit should be eliminated in its entirety in the future.
  • That the minimum cash wage be reduced by $1.00 to $6.50 per hour when the weekly average of cash wages and tips received by an employee equals or exceeds the applicable hourly minimum wage rate by 150 percent in New York City or 120 percent in the rest of the state.

Under New York law, the Commissioner of Labor (or in this case the Acting Commissioner of Labor) can accept, reject or modify any recommendation made by the Wage Board. In his February 24th order, the acting commissioner accepted the first four recommendations and rejected the last recommendation, claiming that it is “inconsistent with recommendations [one and three], which provides for a single tip allowance for all tipped workers throughout the state.”

Accordingly, effective December 31, 2015, all hospitality employers must pay all of their tipped employees at least $7.50 per hour regardless of whether the employees are food service workers (such as servers, bussers and runners) or non-food service workers (such as coat check personnel, valet and delivery persons). Further, this cash wage will not be reduced when the tipped employee’s compensation is significantly more than the minimum wage as has been discussed in the industry since the Wage Board issued its report and recommendation.

As a result of this drastic increase in the cash wage that must be paid to tipped workers effective December 31, 2015, employers have a few options:

  • Pay tipped employees a cash wage of at least $7.50, comply with the 80/20 rule, issue tip credit notifications and ensure that the tip pool consists of only those non-managerial employees that customarily and regularly receive tips and actually perform personal service to patrons as part of their principal duties;
  • Pay all employees at least $9.00 per hour and ensure that the tip pool consists of only those non-managerial employees that customarily and regularly receive tips and actually perform personal service to patrons as part of their principal duties; or
  • Pay all employees at least $9.00 per hour and become a non-tipping establishment.

In this extremely litigious environment, many of the class/collective action lawsuits filed against hospitality employers concern the employer’s use of the tip credit. These lawsuits allege, in one way or another, that the employer unlawfully took a tip credit, the damage of which is the loss of the tip credit for the entire statutory period for every class/collective action member. If the employer does not take a tip credit, this legal risk is no longer an issue. Therefore, hospitality employers may want to seriously consider paying all of the employees at least the full minimum wage in order to avoid such legal risk as the savings that reaped from taking a tip credit are greatly diminished.

For more information about this alert, please contact Carolyn D. Richmond at [email protected] or 212.878.7983, Glenn S. Grindlinger at [email protected] or 212.905.2305 or any member of Fox Rothschild’s Labor & Employment Department .