Breaking Down New York State Tips Laws for Restaurant Owners

New York restaurant owners must maintain compliance with laws and regulations on multiple levels: statewide regulations, federal guidance, and local ordinances. The result is a complex patchwork of laws that varies from place to place.

To keep your restaurant compliant (and avoid fees and litigation), it’s important to be aware of the ways New York’s state laws vary from federal and local regulations. These New York-specific laws include mandatory service charges, tip credits, tip pooling, and the minimum wage.

The basics of tip laws in New York

New York agrees with federal law on the definition of a tip. Any money a customer leaves voluntarily above the ticket price (including tax) is a tip or gratuity.

Tips belong to the employee, not the employer, and employers can’t take any part of employee tips, with one exception: employers can take a percentage of tips for a valid tip pool.

One high-end NYC restaurant, Kappo Massa, was recently sued for allegedly “withholding tips that should have been paid to the waitstaff.” The restaurant then retaliated against the staff member who reported the violation.

According to the plaintiff’s lawyers, the theft may “add up to hundreds or thousands of dollars per day over the last six years.” If the restaurant is found in violation, it will be required to repay back wages plus damages.

New York also allows employers to claim a tip credit, reducing the cash wage requirement by one-third of the minimum wage.

Service charges vs. tips

Under federal law (the Fair Labor Standards Act, or FLSA), mandatory service charges are not tips, and they’re the property of the restaurant, not the staff. But some states disagree, and where a state’s policies are more generous to workers than the FLSA, the state’s policies take precedence.

This is the case in New York, where service charges are presumed to belong to employees, including mandatory service charges. The state of New York considers these to be gratuities, while the federal statute considers them to be wages (when paid out to staff).

New York law also says that employers must make it clear to customers when special administrative charges (such as banquet or special event fees) are not tips. If those charges are split between the restaurant and the staff, customers must be informed of the exact split rate.

Who is considered a tipped worker in New York?

New York law doesn’t specify who qualifies as a tipped worker, so the federal statute applies. Per the FLSA, in Fact Sheet #15:

“A tipped employee is an employee engaged in an occupation in which they customarily and regularly receive more than $30 a month in tips.”

What is minimum wage for tipped employees in New York?

The minimum wage in New York changed to $15 per hour for all locations on January 1, 2024. New York City, Long Island, and Westchester had already reached that level and were scheduled to increase to $16 in 2024.

New York employers can take advantage of a tip credit that allows them to pay their tipped employees a lower minimum wage. However, the tip credit rates are different for service employees and food service workers. Where minimum wage rates have reached $15, the tipped rates look like:

Multi-state operators should be aware that New York’s minimum wage for tipped employees is higher than in any of its neighboring states. However, its tip credit is actually lower than New Jersey’s.

As the minimum wage continues to rise in New York State, the cash wage is likely to rise proportionally at two-thirds the full minimum wage.

Attorneys at Fox Rothschild explain:

“On October 4, 2023, the New York State Department of Labor (NY DOL) issued proposed regulations (Proposed Regulations) that, if adopted, will adjust the tip credit for food service workers so that the cash wage remains at only 2/3 of the soon-to-be-increased minimum wage.

“The Proposed Regulations also address, amongst other things, changes to meal credits, uniform allowances, and other payments and allowances required or permitted under New York law, also as a result of the impending minimum wage increase.”

How tip credits work in New York

Tip credits are a way for employers to pay less than the full state minimum wage by including tips (or a portion of tips) in the wage calculation.

Instead of paying the full minimum wage for all hours worked, New York restaurants can pay two-thirds of that amount, claiming the rest as a tip credit. With a $15 minimum wage, this works out to a $10 cash wage and a $5 tip credit. As the minimum wage increases, so too will the cash wage and tip credit in a two-to-one ratio. For example, if the minimum wage rises to $18, the cash wage will go up to $12 and the tip credit will increase to $6.

Conditions for applying tip credits

There are several caveats to this policy. First, employees must still earn at least the full minimum wage (cash wage + tips). If, for any reason, an employee isn’t earning an average of $5 per hour in tips (assuming a $15 minimum wage), the employer has to pay the difference so the employee reaches the full minimum wage.

Tip credits and dual jobs

The other major caveat is clarified in FLSA Fact Sheet #15a, which covers how the tip credit works when tipped employees are doing work that doesn’t earn tips.

Employers can claim the tip credit when an employee is doing tip-producing or tip-supporting work (side work, food running, etc.). However, if tip-supporting work makes up more than 20% of a workweek or lasts for longer than 30 consecutive minutes, the employer has to pay the full minimum wage for that time.

If the work isn’t related at all to the tipped occupation (running personal errands for the manager, cleaning the bathrooms), then employers have to pay at least the full minimum wage.

How to calculate tip credits

The formula for calculating tip credits looks like this:

So, with a $15 minimum wage and state guidelines that set the cash wage for restaurant workers at two-thirds the minimum wage:

Regulations for tip pooling and tip sharing: How New York protects employees

New York’s tip laws are among the most employee-friendly in the nation and include stricter rules on tip pooling and a higher tip credit limit. Additionally, New York’s retaliation protections for tipped employees are stronger than those in neighboring states.

Tip pooling

Tip pooling or tipping out is the practice of collecting a share of every employee’s tips, and then redistributing those tips at a defined rate.

In New York, tip pooling is legal, provided everyone in the pool makes at least the full minimum wage. Supervisors and managers can’t normally participate, but there is an exception for those with limited supervisory duties who regularly serve guests.

New York distinguishes between directly tipped employees (like servers and bartenders) and indirectly tipped employees (like bussers and barbacks). So tip pooling arrangements are a way to ensure both categories are compensated fairly.

BOH employees can’t be included because they already receive minimum wage and don’t customarily receive tips. Employers who allow employees into the tip pool who shouldn’t be there (BOH, management) forfeit the right to claim a tip credit.

Tip sharing

Tip sharing is where directly tipped employees pay a portion of their tips to support staff or indirectly tipped employees. Employers can require employees to participate in tip sharing, or employees can voluntarily tip share.

The key difference between tip sharing and tip pooling is that, with tip sharing, tipped employees pay a portion of tips to other staff themselves. Whereas, with tip pooling, the employer collects the tip pool and distributes it accordingly.

Retaliation protection

Employees are protected from retaliation if they report or file a complaint regarding wage or hour violations. Retaliation is not legal, but if it happens, employees should first contact the state’s Department of Labor:

Phone: 1-888-52-LABOR
E-mail: LSAsk@labor.ny.gov

Employees may also want to speak to an employment lawyer practicing in the state.

Record keeping and reporting requirements for tips

It’s important to maintain accurate records of employees’ tips—for two reasons. First, these records help ensure that your restaurant stays in compliance with all state and federal wage and hour laws. Second, they make it easy to confirm whether employees’ hourly wages and tips add up to at least the minimum wage.

New York’s Labor Law Section 196-d says that employers must keep daily records of the tips their employees receive and that those records must be available for the DOL to inspect.

In addition, wage statements provided to employees have to show how much of the check is wages and how much is tips.

How employers can stay compliant with tip laws

New York State’s regulations for tipped employers can get confusing, but these tips will go a long way toward keeping your restaurant in compliance.

• Implement a modern restaurant management system like 7shifts that tracks and stores tip documentation.
• Use that same system to calculate wages and hours automatically, ensuring all employees meet at least the full state minimum wage, every single week.
• Provide a way for employees to report tips digitally.
• Never skim any part of any employee’s tip for personal use, restaurant overhead, or any other expense.

Additional resources for New York restaurant owners

Explore these additional resources to learn more about New York’s restaurant labor laws.

• Detailed chart outlining changes to tip credits, minimum wages, and overtime minimum wages as the state’s minimum wage increases
• New York DOL minimum wage overview
• FLSA Fact Sheet #15: Tipped Employees
• 2023 Restaurant Labor Laws Cheat Sheet for New York
• Detailed explainer for Section 196-d