DO YOU RECEIVE A SIGNIFICANT PORTION OF YOUR INCOME THROUGH TIPS?
Tip Pooling, Tip Credits, and Wage Theft
Employees who regularly receive tips may be paid a lower wage, but federal and state laws require that businesses that pay these lower rates fulfill certain conditions.
If you receive a significant portion of your income through tips and are paid no hourly wage or an hourly wage less than the minimum wages for tipped employees you may be able to file a claim for lost wages. The attorneys at Pelton Graham LLC have handled many unpaid wage matters for waiters and other tipped employees.
There are millions of employees who work for tips in the United States, including:
Unfortunately, these workers are often abused by their own employers in a variety of ways. Pelton Graham LLC has a particular expertise in this area and has helped thousands of employees get their fair pay.
Are tip pools legal?
TIp pools are legal if employers follow certain requirements. A “tip pool” means that all tips are all pooled together and then redistributed according to a preset plan.
A tip pool cannot include managerial employees or back-of-house employees such as chefs, line cooks and dishwashers. Employers and managers cannot take a portion of tips or wages to pay expenses of the business or to cover for losses, bad checks, order mistakes, or unpaid bills.
Finally, employers may not require tipped employees to forfeit some of their tips in order to receive their hourly wages. This practice, known as a “kickback,” is illegal under the New York Labor Law. If your employer forces you to forfeit some portion of your tips in order to receive the rest of your wages, contact Pelton Graham today.
Do tipped workers receive overtime?
Yes! Tipped workers must receive overtime when they worked over 40 hours in a week. The overtime rate is calculated as 1.5 times the regular minimum wage, minus the tip credit (the difference between the regular minimum wage and the tipped minimum wage). Find out more information on unpaid overtime.
Take the example of a food service employee in New York City at a large employer working in 2020. The tipped minimum wage for a food service employee in New York City at a restaurant with 11 or more employees is $10 per hour with a tip credit is $5. The overtime rate is $17.50.
This is calculated as the regular minimum wage rate ($15) times 1.5 for a regular overtime rate of $22.50. The tipped overtime rate is the regular overtime rate minus the $5 tip credit. Find out more on calculating overtime.
Who receives service charges?
Many restaurants bill customers for a “service charge,” especially for large events. While customers may assume this “service charge” is paid to employees, this is often not true.
In New York, courts have decided numerous cases regarding service charges. In general, where a reasonable customer would assume that a service charge would be paid to tipped employees, those amounts must be paid to tipped employees. If a bill clearly states that service charges are paid to the restaurant and not to tipped employees and that any tips should be paid separately, an employer may be able to keep the service charge.
If you are a tipped employee and your employer bills customers for service charges that are not paid to staff, contact Pelton Graham to discuss whether you are entitled to receive service charges.
What are minimum wage rules for tipped employees?
If any of these conditions are not fulfilled, tipped employees may be owed wages for all or some of their hours worked.
Tipped Minimum Wage Rates
In New York, the laws surrounding the tipped minimum wage are quickly changing and depend on one’s job and location. For the most recent information and a discussion of your personal situation, call Pelton Graham LLC at (212) 385-9700 to talk with one of our experienced attorneys.
The “tip credit” in New York state is $5, meaning employers can pay tipped employees $5 below the regular minimum wage. Currently New York state is in the process of gradually increasing the tipped minimum wage to $10 for food service employees, $12.50 for non-food service tipped employees in hospitality industries such as tipped hotel and resort workers, and $15 for workers in “miscellaneous industries,” in other words non-hospitality, non-food service, including car wash workers, hair and nail salon employees, tour guides, and more.. Fast Food employees may not receive the tipped minimum wage and must be paid the regular minimum wage.
The minimum wage for tipped employees who are service employees or food service workers are as follows:
For hospitality industry service employees (non-food service):
- New York City Large Employers (11 or more employees): $9.15 in 2017, $10.85 in 2018, $12.50 in 2019 and beyond
- New York City Small Employers (10 or fewer employees): $8.75 in 2017, $10 in 2018, $11.25 in 2019, $12.50 in 2020 and beyond
- Long Island and Westchester: $8.35 in 2017, $9.15 in 2018, $10 in 2019, $10.85 in 2020, $11.65 in 2021, $12.50 in 2022 and beyond
- All Other Locations in New York State: $8.10 in 2017, $8.65 in 2018, $9.25 in 2019, $9.85 in 2020, $10.40 in 2021, to continue increasing yearly at rates set by the Department of Labor
For food service employees:
- New York City Large Employers (11 or more employees): $7.50 in 2017, $8.65 in 2018, $10 in 2019 and beyond
- New York City Small Employers (10 or fewer employees): $7.50 in 2017, $8 in 2018, $9 in 2019, $10 in 2020 and beyond
- Long Island and Westchester: $7.50 in 2017, $7.50 in 2018, $8 in 2019, $8.65 in 2020, $9.35 in 2021, $10 in 2022 and beyond
- All Other Locations in New York State: $7.50 in 2017, $7.50 in 2018, $7.50 in 2019, $7.85 in 2020, $8.35 in 2021, to continue increasing yearly at rates set by the Department of Labor
For miscellaneous industry employees:
- Covers non-hospitality, non-food service workers including car wash employees, nail and hair salon employees, tour guides, and others
- Tipped minimum wage will depend on how much employees receive in tips, as well as location within New York
- The tipped minimum wage for miscellaneous industries will increase across the state beginning in 2020 until it is phased out to meet the regular minimum wage
- In 2021, the rate for these industries will be $15 in New York City, $14 in Long Island and Westchester, and $12.50 over the rest of New York state
- Fast Food Employees: No tip credit is permitted for fast food employees.
Wage Theft Through Unfair Tipping Schemes
Wage theft through unfair tipping schemes is particularly common in food and drink service, and many restaurants have been found to be in violation of wage and hour laws. Although the law requires employers to be sure employees receive at least the minimum wage, tips are included, the sad fact is that many restaurants ignore these requirements. In investigations of over 9,000 restaurants from 2010-12, the U.S. Department of Labor found that 84 percent of investigated restaurants were in violation of wage and hour laws.
We’re Here to Help
If you have lost pay or benefits to an unscrupulous or careless employer, especially if it affects a number of employees in the same situation, you should act promptly to seek advice. This is important both in order to get you the pay you have earned, and because employment protection laws have strict filing deadlines which could bar your claim. Pelton Graham LLC is here to help.
The Department of Labor offers a confidential complaint form on its website.
- US Department of Labor, tips summary and pages: https://www.dol.gov/general/topic/wages/wagestips
- New York State Department of Labor, tips FAQ (pdf): https://www.labor.ny.gov/legal/counsel/pdf/tips-frequently-asked-questions.pdf
- California Department of Industrial Relations, tips FAQ: https://www.dir.ca.gov/dlse/faq_tipsandgratuities.htm
- World Yacht NY service charge case (2008) does not apply to “delivery charges” in a 2020 case: https://www.courtlistener.com/opinion/4732622/belizaire-v-ahold-usa-inc/