Normally tipping is no more complicated than figuring out whether to leave 15 or 20% of the check based on the service you received (or less or more if the service was particularly bad or good). Well, for restaurant, hotel and bar owners, the NYS Labor Department has issued the first-ever set of guidelines for how tips must be shared by employees and documented by employers. Having represented many restaurant owners in claims by employees that included improper tip-sharing claims, I can state that this guidance was long overdue.
Previously, courts had to interpret an unclear paragraph from a 1968 regulation that barred employers from taking any of their employees tips. That was clouded by a long selection of subsequent Labor Department opinions and inconsistent judicial decisions that did not help resolve the flood of wage and hour litigation involving tips. Here is a summary of the key provisions of the new Hospitality Wage Order issued January 1, 2011 (effective immediately, though see below for how it will roll out)
I. Minimum Wage
a. Tip Credit Reduced
The NYS Labor Department kept the minimum wage at $7.25 per hour and overtime is still time and a half for anything beyond 40 hours per week; it did however, lower the tip credit for these classes of workers, effectively raising the minimum wage employers must pay “tipped” employees. For food service workers it raised the minimum to $5.00 (from $4.65) with a maximum tip credit of $2.25 per hour (down from $2.60). Service employees must be paid $5.65 per hour (up from $4.90) with a max tip credit of $1.60 (down from $2.35). In resort hotels, if tips are at least $4.10 per hour, then the minimum wage payable is $4.90 per hour ( up from $4.35) with a max tip credit of $2.35 (down from $2.90). Chambermaids were also merged into this category whereas before they had their own category of hourly wages and tip credits.
In addition, when calculating overtime pay, the employer must first calculate the amount owed on the full rate and then deduct the tip credit. It is a violation to first deduct the tip credit and then multiply the difference by the 1 1/2 overtime rate.
Here is an example: A tipped food service worker must be paid $7.25 per hour and the maximum credit that can be applied is $2.25. If that employee works 50 hours in one week, then his salary would be calculated as follows:
Regular rate= $7.25 per hr. Overtime rate = $10.875 per hr. (7.25 x 1.5)
Wage rate for the first 40hours =$7.25-$2.25 =$5.00 per hr.
Wage rate for the next 10 hours= $10.875- $2.25 = $8.625
Weekly Wages: $5.00 x 40 = $200. $8.625 x 10 = $86.25 Total =$286.25
You can also just take the tip credit out at the end in this type of calculation:
Wages: $7.25 x 40 = $290.00; $10.875 x 10 = $108.75; Total is $398.75
Tip Credit: $2.25 x 50= $112.50; Total owed is $398.75 – $112.50 =$286.25
b. Elimination of “weekly, day and piece meal” salaries
All employees in this category must now be compensated on a pure hourly basis, so that the employer can no longer pay on an X dollars per week or per day or per shift basis. This significantly increases an employer’s exposure to overtime claims. The overtime amount is set for all employees at 40 hours per week, even those in hotels that stay on premises. Previously these “residential” or “live-in” employees had to work 44 hours to receive overtime benefits.
c. Tip Pooling or Sharing is Now Strictly Regulated
Employers are still allowed to require employees to pool and share their tips. However, for the first time in NY State, there are a definitive set of rules in place if this practice is to be put into place. Employers must give written notice to the employees of the tip sharing policy. The notice must be in English and must be in the primary language spoken by the employee if the Dept of Labor has such notices available in that language. The employer must keep written records of the tips and how they were divided. Employees have the right to inspect those records. If a charge is automatically placed on the customer’s account, those records must be kept and are subject to inspection by the employee. The employer can charge the employee no greater percentage than the percentage the credit card companies charge the employer for tips placed on credit cards. All house-imposed charges placed on a guest’s bill that are labeled as a gratuities must be paid in full to the employees. If the house is going to have any other charge, such as an “administration” or “house ” charge for the administration of a banquet or a catering event, then the guest’s contract and bill must clearly state that this charge is not a gratuity and will not be shared with the employees as a gratuity. If a portion is to be shared, the notice must state which portion will be shared with employees and which portion shall not be shared in clear and precise language. The regulation even requires that this notification to the customer be in the same size font as the rest of the contract, but in no event can it be smaller than a 12 point font.
Eligible employees are now defined as those that have personal contact with patrons as a principal and regular part of their duty, not merely occasionally or incidentally. The Dept of Labor list of eligible employees includes:
Wait staff, counter staff (who serve to customers), bus persons, bartenders, barbacks, food runners, captains who serve to customers directly, and hosts and hostesses who greet and seat guests. Exempt persons (Managers and administrative personnel) are forbidden from sharing in tips.
The regulations leave for the employer and employees to work out the percentage of the tip received directly by someone that is to be shared with the indirectly tipped employees. The distribution of the tip share or pool must be handled by the employees themselves, though the employer must maintain the records of the share or pool. The records must be maintained for six (6) years and contain detailed information including the occupations that the employer is including in the tip pool or share and the amounts received each shift by each employee whether in cash or by credit card.
d. Miscellaneous Provisions
There are other new regulations effecting uniform maintenance pay; spread of hours pay (employees receive an extra hour of pay if there day goes beyond 10 hours no matter how many hours they work during that spread of hours); reimbursement for uniform expenses; and meal credits (no more than $2.50 credit to be given for an employer provided meal).
e. When is it Effective?
The rules are effective January 1, 2011, but an employer has until March 1, 2011 to fully implement them. However, all wages owed must be calculated as of January 1, 2011 and the employee must receive the back pay owed by March 1 or the first pay period following March 1, 2011.
In an effort to make sure that workers in this category get compensated properly, the Dept of Labor has decided to place the employer in the middle of the employee’s tip pool or share. The burden is on the employer to keep accurate records and to provide written notice of something that used to be traditionally worked out by the staff among themselves. If they were happy, the boss was happy. Now at the end of each shift, someone for management must document who got what and in what fashion. Failure to keep such records would make the employer subject to strict penalties and could expose them to false claims that they or management personnel shared in the tip pool. Any proprietor of an establishment staffed by these categories of workers needs to re-vamp their employee forms and postings to make sure they are in compliance.