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:

Food and beverage servers
Bartenders
Housekeeping staff
Hotel porters
Valet parking attendants
Hair stylists
Doormen and women
Spa attendants
Newspaper delivery drivers

Food delivery drivers
Movers
Dog and pet groomers
Airport porters
Golf course starters, caddies and attendants
Masseuses
Nail salon stylists
Condo superintendents

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.

Tipping Basics

Who is a tipped employee?

A tipped employee is a person who receives at least $30 per month from tips.

Both State and Federal Laws Apply to Tipped Employees

There is some overlap between state and federal law, and in this case the law more favorable to the employee controls.

Tip Pooling/Tipping Out

Servers/waiters are sometimes required to contribute part of their tips to other “front of the house” employees such as bussers, bartenders, and hosts/hostesses. It is generally legal, with important restrictions. Under no circumstances may an employer keep money from the tip pool. Managers and supervisors may not participate in the pool. And, in some states such as California, there is a limit on how much you have to contribute and which employees may participate.

Tip Credit

Some states allow employers to pay less than the regular minimum wage to tipped employees. In these states, your tips plus your wages must equal the minimum wage. If not, your employer must pay the difference to you. Exceptions: California, Minnesota, and Oregon do not allow employers to pay less than the minimum wage.

Can I be paid less than minimum wage?

Charges for uniforms, breakage, walk-outs, cash drawer shortages, etc. cannot result in you being paid less than the minimum wage.

Credit Card Payments

Your employer can reduce your tips by the percentage fees charged by a credit card company, usually 2-3% (not allowed in California).

Service Charges

Service charges are typically applied in the case of large groups in a restaurant or a catering situation. This money does not meet the definition of a “tip,” and is for the employer, although many employers do share some of it with the serving staff. New York courts, however, have disagreed, finding that where a reasonable customer would assume that a service charge would be paid to tipped employees, those amounts must be paid to tipped employees.

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.

THE BASELINE

What are minimum wage rules for tipped employees?

Tipped employees must earn at least the minimum wage through combined tips and wages

Tipped employees must be paid the “tipped minimum wage.” The federal law sets the “tipped minimum wage” at $2.13 per hour, and many states have higher tipped minimum wage rates.

Only employees who perform “traditional tipped duties” such as serving meals at a restaurant may be paid the tipped minimum wage. Managers, “back of the house” employees such as cooks, cleaning staff, and other employees who do not typically receive tips must not be paid the tipped minimum wage.

Only employees who spend a high percentage of their time performing tipped duties may be paid the tipped minimum wage. For example, a server who spends hours per day on side work like cleaning may be owed wages at the non-tipped minimum wage rate.

The employer must give all tipped employees notice that they will be paid at tipped rates. New York state has very specific rules about this notice; it must be written and must clearly state that the employer is taking the tip credit and the amount of the tip credit taken.

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.