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Abrupt Changes for New York’s Restaurants and Hotels: Minimum Wage, Tip Pooling, and Recordkeeping Requirements

By: Kara Maciel

Following up on our previous blog posting from November 2, 2010, on December 16, 2010, the New York State Department of Labor issued a new minimum wage order (the “Order”) which will bring immediate changes to the restaurant and hotel industries. Under the Order, employees will be due a higher minimum wage and subject to new tip pooling rules. Meanwhile, employers will need to comply with more stringent recordkeeping requirements. Although employers have until February 28, 2011, to adjust their payrolls, they will still owe their employees back pay as of January 1, 2011. Important highlights include: 

Higher Minimum Wage for Tipped Employees:

· Food service workers must earn at least $5.00 per hour and no more than $2.25 per hour in tip credits; however, the total of tips they receive plus their hourly wages must still amount to the federal and state minimum wage of $7.25 per hour

· Service employees (at non-resort hotels)must earn at least $5.65 per hour and no more than $1.60 per hour in tip credits; however, the total of tips they receive plus their hourly wages must amount to the federal and state minimum wage of $7.25 per hour

· Service employees (at resort hotels) must earn at least $4.90 per hour and no more than $2.35 per hour in tip credits; however their weekly average for tips must amount to at least $4.10 per hour

Mandatory Tip Pooling is Permitted

· Employers may require food service employees to pool tips with co-workers

· Employers may establish the percentage of pooled tips to be distributed to each occupation

· However, only “food service workers” may receive distributions from the tip pool, e.g., wait staff; counter personnel who serve food or beverages to customers; bus persons; bartenders, including service bartenders; barbacks; food runners; captains who serve food directly to customers; and hosts who greet and seat guests

No More Set-Off of Wages Paid in Excess of Minimum Wage:

· Employers must pay an additional hour at the rate of minimum wage for each hour the employee works beyond 10 hours per day, regardless of whether the rate of pay for the first 10 hours is above the minimum wage

Non-Exempt Employees Must be Paid an Hourly Rate of Pay:

· All non-exempt hospitality workers (except commissioned salespersons) must be paid on an hourly basis, i.e., no non-exempt salaried workers

· In calculating the overtime rate of pay, employers no longer may subtract an employee’s tip credit from the regularly hourly rate of pay and then multiply the reduced rate by one and one half; instead, employers must calculate the overtime rate based upon an employee’s full hourly rate

Employers Must Keep the Following Records for Six Years:

· Amount in tips contributed by each employee during each shift (cash and credit)

· Amount in tips collected by each employee by date (cash and credit)

· Occupations eligible for tip pooling and each occupation’s respective percentage of the tip pool

Clarification as to “Service Charges:”

· Employers may retain fees identified as “service charges” if, and only if, they clearly explain to customers that such charges are not distributed to service employees

The Order imposes several important requirements, but unfortunately, leaves employers with a very short amount of time to implement the necessary changes to their payroll and recordkeeping methods. Despite having until February 28, 2011, to comply with the Order, employers will be best served by taking immediate action to bring their businesses in compliance with the new regulations. The interim period during January and February should be utilized to ensure proper records are kept and that an employer’s tip pool is not shared with ineligible individuals. Finally, the bullet points above represent only a portion of the changes under the Order, and employers should become familiar with the entire regulation before the end of the grace period.