End of Tip Credit for “Miscellaneous” Employers in New York is Near

Seyfarth Synopsis: The New York Department of Labor is officially phasing out the “tip credit” this year for a wide variety of workers outside the hospitality industry. The first phase of the elimination took effect on June 30, 2020 and the remainder will be eliminated on December 31, 2020.

As we reported in January 2020, the New York Labor Commissioner proposed an amendment to the State’s minimum wage regulations that would eliminate the “subminimum wage” in a variety of industries outside of hospitality.

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 New York City 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 minimum wage in New York City.

The Commissioner’s proposal has now been enacted. Accordingly, effective June 30, 2020, the maximum tip credit for workers in “Miscellaneous Industries and Occupations” has been reduced by 50%, from $5 to $2.50 in the above example, and will be eliminated entirely by December 31, 2020.

Using the above example, for the next six months, a New York City car wash must pay its attendants $12.50 per hour instead of $10 per hour. This is because the car wash can only claim 50% (i.e., $2.50) of the $5 tip credit. After six months, as of December 31, 2020, the tip credit will be eliminated, meaning that the car wash must pay its attendants the full $15 per hour to which they are entitled under the minimum wage law. None of the tips that the car wash attendants earn after December 31 will be creditable toward their minimum wage.

The regulatory term “Miscellaneous Industries” covers a variety of workers who are customarily tipped, such as car wash attendants, nail salon workers, tow truck drivers, dog groomers, wedding planners, tour guides, valet parking attendants, hairdressers, golf and tennis instructors, and building door attendants. The new rules do not affect in any way the permissibility of the subminimum wage in the hospitality industry (hotels, restaurants and catering).

Employer Takeaways

Employers covered by the Miscellaneous Industries Wage Order should review their pay practices, phase out the tip credit by 50% immediately, and plan to remove it entirely on December 31, 2020.