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Tip Credits Leaving New York State

Tip Credits Leaving New York?

On December 17, 2017, Governor Andrew Cuomo directed New York’s Commissioner of Labor to schedule public hearings to evaluate the possibility of ending minimum wage tip credits in the State.

Tip credits permit employers to satisfy part of an employee’s minimum wage entitlement through tips earned, rather than cash wages paid by the employer.

Several states (Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington) have long prohibited employers from using tips received by employees as a credit against their state minimum wages.

Cuomo’s Take on Tip Credits

Governor Cuomo’s announcement strongly suggests a belief that New York should eliminate tip credits.

“At the end of day, this is a question of basic fairness. In New York, we believe in a fair day’s pay for a fair day’s work and that all workers deserve to be treated with dignity and respect,” Governor Cuomo said. “There should be no exception to that fairness and decency. I have directed the Department of Labor to ensure that no workers are more susceptible to exploitation because they rely on tips to survive. I look forward to reviewing the findings of these hearings.”

The press release from the Governor’s office offered that more than 70% of all tipped workers in New York are women. It cited a 2014 study by the Restaurant Opportunities Center asserting that “Workers in states that require the full minimum wage be paid to tipped employees experience half the rate of sexual harassment compared to workers in states that pay lower wages to tipped employees.” The Governor’s release also indicated that “studies have shown that African-American workers are often tipped less than their white counterparts.”

New York Hearings on Tip Credits

New York Commissioner of Labor Roberta Reardon has released a schedule of seven “Hearings on Subminimum Wage” throughout the State. The first one will take place March 12, 2018 in Syracuse. The others will be in Buffalo, Long Island, Watertown, Albany, and New York City.

According to the DOL’s website:

Oral presentations may be strictly limited to 3 minutes each. Priority in seating and speaking will be given to those who preregistered. Seating and speaking order for those who do not preregister will be handled on a first-come, first-served basis as determined by event staff. Written testimony must be submitted to: hearing@labor.ny.gov before July 1, 2018.

Click here for the full hearing schedule.

At the Federal Level

Meanwhile, the U.S. Department of Labor is planning to rescind Obama-era restrictions on employers that pay a direct cash wage of at least the full federal minimum wage and do not claim a tip credit against their minimum wage obligations. The agency published a Notice of Proposed Rulemaking on December 5, 2017, seeking to amend the 2011 rule. The already controversial topic has escalated recently upon reports that the U.S. DOL did not make public its economic analysis regarding the proposed changes to the tip pool rules. On February 5, 2018, the Office of Inspector General of the U.S. DOL initiated an audit of this rulemaking process.

The federal rule change would permit back-of-the-house workers to share in the pooled tips of employees who interact directly with customers. Critics oppose the measure in that it might reduce employee compensation by allowing management to personally participate in tip pools.

At least within the hospitality industry (restaurants and hotels), New York has its own rules regarding tip pooling. In most cases, those requirements would likely make the proposed change to the federal rules irrelevant in New York. Most employers must abide both the state and federal regulations. And it does not appear that the New York tip pooling rules are under reconsideration at this time.

Potential Impact on New York Employers

New York employers who currently rely on tip credits to satisfy a portion of the State’s minimum wage should anticipate paying a higher percentage (perhaps 100%) of the minimum wage in cash by the end of 2018. The State might impose separate rules for those in the hospitality industry and others where employees regularly receive tips.

Losing tip credits may force employers to adjust their prices or other components of their business models. For example, some employers have announced express “no tipping” policies. This allows them to increase what they charge customers without increasing the customers’ overall cost. Employers can then use the additional revenues to pay the minimum wages.

Click here for more information on the current New York minimum wages for both tipped and non-tipped employees.