Understanding New York’s Tip Credit

Understanding New York’s Tip Credit

Last updated on May 3rd, 2024

Several states have already done away with tip credit for food service workers, and more are exploring the option, including New York. While the debate continues about whether this is a positive or a negative for restaurants and employees, New York has moved ahead with changes to wage theft laws, along with minimum wage increases starting this year and continuing in 2025 and 2026. This makes understanding how the tip credit works in New York even more important as mistakes can be costly and even result in criminal proceedings.

Here’s a quick review…

What is a tip?

Any amount of money a customer voluntarily leaves that’s above the ticket price plus tax is considered a tip.

What is a tip credit?

It allows employers to pay food service workers a rate that’s lower than minimum wage by including tips or a portion of them in wage calculations. Foodservice workers’ combined wage plus tips must equal at least the full minimum wage; otherwise, the employer must make up the difference.

Who owns a tip?

A tip belongs to an employee – not an employer. An employer is not entitled to take any part of a tip, except for a percentage of tips for a valid tip pool.

Who is considered a tipped worker?

While this isn’t defined under NY law, the FLSA applies and defines it as “a tipped employee is an employee engaged in an occupation in which they customarily and regularly receive more than $30 a month in tips.”

What about service charges?

Under the FLSA, mandatory service charges are the property of the restaurant as they’re not considered tips, but New York has a more generous policy so it takes precedence. It assumes service charges are gratuities and belong to employees. Employers must clearly let customers know when administrative charges like banquet or special event fees are not tips and, if the restaurant splits the charges with staff, they must let customers know the exact split rate.

What is New York’s minimum wage for tipped food service workers?

In NYC, Long Island, and Westchester, the cash wage is $10.65 and the tip credit is $5.35. For all other NY locations, the cash wage is $10 and the tip credit is $5.

What recourse do employees have if tip regulations are not followed?

They may report or file a complaint regarding hour or wage violations and are protected by law against retaliation. As of the end of last year, wage theft became eligible for criminal prosecution.

Are there tip recordkeeping and reporting requirements?

Yes! They help ensure compliance with state and federal wage and hour laws and serve as proof that you are upholding minimum wage requirements. Under NY Labor Law Section 196-d, employers are required to have daily records of the tips employees receive and those records are subject to DOL inspections. Also, employee wage statements must show how much of the pay is in tips and wages.

To help with recordkeeping and compliance, there are restaurant management systems to track and retain tip documentation. There are also applications allowing employees to self-report.

While the future of tip credits in New York is up in the air, right now they still exist. If you have any questions, we strongly encourage you to seek legal counsel.

Please remember RBT CPAs is available to meet all of your accounting, tax, audit, and advisory needs. We’ve been proudly serving municipalities, businesses, non-profits, and individuals in the Hudson Valley for over 50 years. Please don’t hesitate to give us a call and find out how we can be Remarkably Better Together.

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Note: RBT CPAs is not a law firm and the information provided herein should not be taken as legal counsel or advice. Any questions should be directed to your legal counsel.