New York state rang in 2020 with a sweeping change to its minimum wage and tip credit rules that is expected to impact roughly 70,000 workers. On December 31, 2019, the New York State Department of Labor (the NYSDOL) recommended to Governor Andrew Cuomo that the state eliminate the tip credit for all miscellaneous industry workers (don’t worry, we will explain what that means). Governor Cuomo has announced that he will implement the recommendation, which will go into effect later this year.

By way of background, both federal and New York state laws generally require that employers pay non-exempt – i.e., hourly – employees at least the applicable minimum wage rate. Both laws, however, contain an exception that permits employers to pay tipped employees less than the minimum wage, provided that the employees’ direct wages plus tips equal or exceed the minimum wage rate or overtime rate, as applicable. The difference between the minimum wage rate – which presently varies between $12.50 and $15 per hour in New York (depending on location within the state) – and the reduced wage for tipped employees is known as a “tip credit.” In practical terms, the tip credit means that certain employers are permitted to pay employees at a rate lower than the minimum wage so long as the employees receive sufficient tips in the course of their work.

For decades, NYSDOL regulations known as “Wage Orders” have allowed employers in certain industries to take the tip credit when paying their non-exempt employees. Under the state’s new measure, however, employers covered by the Wage Order for Miscellaneous Industries and Occupations (the Miscellaneous Wage Order) will no longer be able to take the tip credit. This change impacts, among others, car wash attendants, nail salon workers, tow truck drivers, dog groomers, wedding planners, tour guides, valet parking attendants, hairdressers, aestheticians, golf and tennis instructors, and building door-persons. Under the new rules, employers must pay such employees at least the minimum wage rate and may not take a credit for tips earned by the employees.

It is crucial to note, however, that the proposed amendment will have no effect on the hospitality industry, which relies heavily on the tip credit. Restaurants, bars, hotels, and similar establishments will still be able, therefore, to take the tip credit so long as their employees’ earn sufficient tips.

Per the NYSDOL’s recommendation, the state’s elimination of the tip credit will be phased in over a one-year period. Specifically, the tip credit for all industries covered by the Miscellaneous Wage Order will be reduced by 50 percent on June 30, 2020, and then altogether eliminated on December 31, 2020. Employers covered by the Miscellaneous Wage Order should begin reviewing their pay practices in preparation for compliance with this new measure.