New York State To Eliminate Tip Credit For Many Employees Beginning June 2020

Q:  I heard New York is changing its rules around tip credits for some types of employees.  What do I need to know?

A:  A tip credit is a concept permitted under the Fair Labor Standards Act (“FLSA”) and many state laws.  A tip credit allows employers to pay employees a cash wage of less than the minimum wage and take a tip credit up to a set amount.  For example, under the FLSA, employers can pay tipped employees a minimum cash wage of $2.13 per hour, and take a tip credit of $5.12 per hour.  If employees receive less than $5.12 an hour in tips, the employer must pay the employee the difference so that an employee always earns at least $7.25 (the minimum wage) per hour.  Regardless of whether an employer takes a tip credit, all tips are the property of the employee.  So, if an employer takes a tip credit and the employee makes more than $5.12 per hour in tips, the additional amount belongs to the tipped employee.

Currently, New York employers are permitted to take a tip credit for employees in miscellaneous industries. Employees covered by the miscellaneous industries wage order are those employees who are not covered by any of the other wage orders (hospitality, agricultural, non-profit, and building services).  Common types of employees covered by the miscellaneous wage order include employees in hair salons, nail salons, and car washes, as well as door-persons, tow truck drivers, valet parking attendants, and dog groomers.  The amount of the tip credit varies depending on: (1) where the employee is (New York City, Long Island & Westchester, or the remainder of New York); and (2) the average amount of tips the employee receives per week.  There is a “low” and “high” tip credit – if an employee’s average weekly tip earnings fall below the low scale, then the employer cannot take a tip credit.  If an employee’s average weekly tip earnings fall between the low and high scale, the employer can apply the low tip credit.  If the employee’s average weekly tip earnings exceed the high scale, then the employer can apply the high tip credit.

Governor Cuomo recently announced that New York is eliminating the tip credit for the miscellaneous industries. The decision is fueled by the New York Department of Labor’s (“NY DOL”) findings that the miscellaneous industries are often those in which wage theft is most prevalent.  In addition to malicious action by employers to underpay employees, the NY DOL found that there is generally confusion about tip credits among both employers and employees, making it difficult to ensure it is properly utilized.

The elimination will occur in two phases – on June 30, 2020, the difference between the minimum wage and current tip wages will be cut in half, and on December 31, 2020, the tip credit will be completely eliminated. For example, for a miscellaneous industry employee in New York City, an employer can currently pay a cash wage of $11.35 – $12.75, and take a tip credit of $2.25 to $3.65, depending on the employee’s weekly tip average.  Beginning June 30, 2020, the employer must pay a cash wage of $13.15 – $13.85 per hour, and can only take a tip credit of $1.15 – $1.85, depending on the employee’s weekly tip average.   Beginning December 31, 2020, the employer must pay a cash wage of $15.00 per hour, and cannot take any tip credit.

Jessica Rothenberg