Seyfarth Synopsis: A proposed amendment to New York State regulations would eliminate the “tip credit” for a wide variety of workers.

On December 31, 2019, the Commissioner of Labor proposed an amendment to minimum wage regulations that would eliminate the “subminimum wage” in a variety of industries throughout New York State.

The “subminimum wage” is a wage paid by employers that, in combination with the average of tips received by the employees (a “tip credit”), equals or exceeds the state minimum wage. For example, if a car wash pays its attendants $10 per hour, and the attendants earn on average at least $5 per hour in tips from customers, then the car wash has satisfied its minimum wage obligations, because the attendants are ultimately earning at least $15 per hour, which is the New York State minimum wage.

The proposal would only affect workers covered by the Minimum Wage Order for Miscellaneous Industries and Occupations, including but not limited to car wash attendants, nail salon workers, tow truck drivers, dog groomers, wedding planners, tour guides, valet parking attendants, hairdressers, golf and tennis instructors, and doormen. Notably, the Commissioner did not recommend the elimination of the tip credit by employers in the hospitality industry, including restaurants and hotels, who would still be allowed to pay employees the “subminimum wage.”

According to a Department of Labor report and recommendation, these workers are typically confused about whether or not they are entitled to earn a minimum wage. Moreover, employers themselves are often confused about how much to pay workers in the “Miscellaneous Industries”, as the calculation is, according to the report, “inordinately difficult to understand.” Even customers are confused: most are unaware, for example, that wedding planners and doormen are paid on a tip credit. Thus, the Commissioner recommends eliminating the tip credit entirely, to provide a more predictable wage for these workers.

Governor Cuomo announced in his 2018 State of the State address that the Commissioner of Labor would hold hearings to evaluate the elimination of minimum wage tip credits in various industries, The Department of Labor held seven hearings across the State and received comments from more than 3,000 individuals.

If adopted, the amendment would become effective December 31, 2020, with a phase-in period from June 30 to December 30, during which currently allowable tip credits must be reduced by fifty percent.

Employer Takeaways

As it is expected that Governor Cuomo will accept the Commissioner’s recommendation, employers covered by the Miscellaneous Industries Wage Order should review their pay practices with an eye towards potentially phasing out the tip credit as of June 30, 2020 and paying their employees the full minimum wage as of December 31, 2020.