Tip Credit Violations in New York

Introduction

Famighetti & Weinick PLLC represents workers in cases of tip credit violations in New York. In industries where tips are common, like restaurants, bars, and hospitality, employees often rely on gratuities as a significant part of their income. In New York, the New York Labor Law allows employers to claim a tip credit, which permits paying tipped employees a lower hourly wage than the state minimum wage, as long as the tips make up the difference.

However, this system can lead to abuses and violations if employers fail to adhere to legal requirements. Below, New York Employment Lawyers Famighetti & Weinick, PLLC will explore the ins and outs of tip credit violations in New York, helping both workers and employers understand their rights and obligations under state law.

What Is a Tip Credit?

A tip credit allows employers to pay tipped employees less than the standard minimum wage as long as the employees earn enough tips to bring their total compensation up to or beyond the minimum wage threshold. The New York minimum wage for non-tipped employees is higher than the federal minimum wage, and tip credit laws are strictly regulated. The minimum wage and the amount employers are able to lawfully use as a tip credit are constantly changing. Employers should pay close attention as New York continues to increase the minimum wage.

Employers are required to ensure that:

• Employees receive enough tips to make up the difference.
• Employees are informed about the tip credit being claimed.

Common Tip Credit Violations

Failure to Inform Employees

One of the most common violations is failing to notify employees that a tip credit is being taken. New York law requires that employers clearly inform tipped employees in writing that they are being paid under a tip credit system. If employers fail to do so, they may be liable for the full minimum wage without taking a tip credit.

Illegal Deductions

Employers are prohibited from making deductions from tips for things like broken equipment, customer walkouts, or uniforms. However, some employers unlawfully deduct money from tipped employees’ wages, reducing their overall compensation below legal thresholds.

Improper Sharing or Pooling of Tips

Tip pooling is legal under certain conditions, but there are strict rules. In New York, only employees who customarily receive tips (such as servers, bartenders, and bussers) may participate in a tip pool. Managers or other non-tipped employees are prohibited from sharing in tip pools. Any improper pooling or distribution of tips is a violation.

Paying Below Minimum Wage After Tip Credit

If an employee’s tips do not bring their wage up to the state minimum wage, the employer must make up the difference. Failure to do so is a direct violation of wage laws.

Misclassifying Employees

Misclassification occurs when employers wrongly categorize workers as independent contractors or exempt employees to exclude them from tip credit protections, leading to underpayment. For example, some employers may attempt to classify tipped workers as salaried employees to avoid minimum wage obligations.

Employee Rights Regarding Tip Credits

Tipped workers in New York have specific rights under the law:

• Notification: Employees must be informed that their employer is applying a tip credit.
• Fair Wages: Total compensation, including tips, must meet or exceed the state minimum wage.
• Tip Ownership: Employees are entitled to keep all their tips unless they are in a valid tip pool with other eligible employees.
• Protection from Retaliation: Employees have the right to report violations without fear of retaliation, including firing or reduced hours.

Penalties for Employers

Violating tip credit laws in New York can result in severe penalties for employers. Some potential consequences include:

• Back Wages: Employers must pay back wages to employees who were underpaid due to violations.
• Liquidated Damages: In many cases, employers may be required to pay liquidated damages equal to 100% of the back wages owed, effectively doubling the amount.
• Civil Penalties: Employers may also face fines and penalties from the New York State Department of Labor.
• Legal Action: Employees may file lawsuits to recover unpaid wages, damages, and legal fees. Class-action lawsuits are also common in cases where multiple employees are affected.
• Legal Fees: Employers facing allegations of tip credit violations will not pay lawyers to defend them from the allegations, but workers who successfully sue employers for unpaid wages or tip credit violations may recover attorneys’ fees, in addition to the other categories of damages.

How to Report Tip Credit Violations

Employees who believe their employer is violating tip credit laws can report it to the New York State Department of Labor or consult an attorney practicing the area of labor law, such Famighetti & Weinick PLLC. The process typically involves:

1. Gathering Evidence: Collect pay stubs, time sheets, and any other documentation showing wages and tips.
2. Filing a Complaint: Complaints can be filed online through the Department of Labor’s website or in person. Lawsuits can also be filed in New York State Supreme Court and oftentimes, because the violations may also implicate the federal Fair Labor Standards Act, lawsuits can also be filed in federal district courts.
3. Investigation: The Department of Labor will investigate the complaint and may order the employer to pay back wages and penalties.

Best Practices for Employers to Avoid Violations

To avoid tip credit violations, employers should follow these best practices:

• Notify Employees: Provide written notice about the use of a tip credit and ensure employees understand their rights.
• Accurate Record keeping: Maintain detailed records of hours worked, wages paid, and tips earned.
• Compliant Tip Pools: Ensure that only eligible employees participate in tip pools and that the pool is properly distributed.
• Monitor Compliance: Regularly review wage and hour laws to ensure compliance with New York regulations.

Conclusion

Tip credit violations are a serious issue in New York’s service industries. Employees need to be aware of their rights, and employers must adhere to the strict regulations surrounding tip credits. By understanding the laws and taking the appropriate steps, both workers and businesses can ensure fair compensation and avoid costly violations.