Have Your Voice Heard In The Battle to Keep the Tip Credit

tipping tip credit elimination

New York Governor Andrew Cuomo appears to have no idea how difficult it is to run a profitable restaurant in New York. He has again raised the prospect of eliminating the tip credit in NY, and consequently requiring all your front of house staff to be paid the full minimum wage. I want to give you the info you need to be heard in this battle.

Amanda Fugazy
Amanda Fugazy, partner at Ellenoff, Grossman & Schole LLP

Currently, New York and 42 other states allow employers to pay tipped workers a lower minimum wage provided that gratuities bring an individual worker’s pay up to the full minimum—this is called the “tip credit”. As you likely know, the tip credit is an hourly credit against the full hourly minimum wage that the law currently allows employers to take on tipped employees as long as the employee makes at least enough tips to bring the individual up to the full minimum wage. Currently, the full minimum wage for employers in NYC with more than 11 employees is $13. The tip credit for food service workers is $4.35.

So, if you are a restaurateur, you can pay your staff with responsibility for direct customer service $8.65/hour ($13 minus $4.35). The $8.65 is often referred to as the “tipped minimum wage.”  Next year, the minimum wage is increasing to $15, and the tipped minimum wage will increase to $10. If Governor Cuomo has his way, the tip credit will be eliminated and the restaurateur will be stuck with paying a minimum of $15/hour to all its staff, including tipped staff.

The Governor apparently fails to realize that eliminating the tip credit is bad for business and bad for workers. Denying restaurateurs a tip credit will put NY owners in a disadvantaged position like no other—it will be one of only 7 states to have no tip credit. Moreover, the federal law only requires restaurateurs pay workers receiving tips $2.13 per hour—more than $6/hour less than NY currently!

Even given the current tipped minimum wage of $8.65, there are only 5 states with higher minimum requirement for tipped employees, and if the pay requirement for tipped employees in NY rises to $15/hour, NY’s pay requirements will likely be the highest in the nation. Add to this the notoriously low profit margins, skyrocketing rents, six minimum wage increases in a row, the dramatic increases in minimum weekly salary for exempt workers, mandatory medical, paid sick time, paid family leave, and scheduling regulations, and you have to ask yourself—how much can you really charge for that burger? How can the Governor actually expect you to take a 33% hit on your direct labor costs for service workers in addition to everything else?

Milea February 2019 728×90

And, that is not even the craziest part about this– the craziest part about this is that eliminating the tip credit will certainly hurt the very people it’s proposed to help- the service employees. It can’t be believed that this cost can be passed onto customers thorough increased menu prices without negative repercussions. Patrons will leave smaller tips. Employers will cut overtime, hours, shifts and staff to save money. Restaurants may even move to a no tipping model, which in a city where servers make about $25/hour on average with tips, will likely result in a reduction in pay.

Additionally, in the Governor’s proposal, restaurants have been grouped with a number of other tipped industries including car washers, beauticians, dog groomer, tow truck drivers, wedding planners and tour guides. We have the deepest respect for the hard working men and women in those fields, but you and I both know, the restaurant industry has far different dynamics.

The tipped minimum wage should be left intact. What I am proposing is that you get involved and be heard. Governor Cuomo has scheduled hearings where the public may speak their opinion on this topic.  The hearings will be presided over by State Labor Commissioner Roberta Reardon and will be held in New York City during the week of June 25, Syracuse (March 12), Buffalo (March 21), Long Island (April 20), Watertown (April 25) and Albany (May 18). You can register to attend by sending an email to hearing@labor.ny.gov.

Given the expectation of overflow crowds preregistration is strongly recommended. Your statement will be limited to 3 minutes. Priority in seating and speaking will be given to those who preregister. Accordingly, I urge you to register today at hearing@labor.ny.gov and have your voice heard to save the tip credit.

Amanda Fugazy
Amanda Fugazy is a partner at Ellenoff, Grossman & Schole in New York City. She is the head of the firm’s labor and employment group, and has a focus on the restaurant and hospitality industry. Fugazy offers a variety of services to the industry, including working with her clients to ensure that they are in compliance with state and federal laws and regulations. She can be reached by phone at 212-370-1300, or by email at afugazy@egsllp.com