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New York Governor Proposes End to Tip Credit

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Opponents claim that doing away with the tip credit would hurt businesses that are already struggling to pay labor expenses.
By Peggy Carouthers December 2017 Employee Management

On Sunday, Governor Andrew Cuomo of New York announced a proposal to end the tip credit in the state. The tip credit currently allows restaurants to pay tipped employees less than the federal minimum wage and use tips to make up the difference. This saves restaurants on labor costs and gives them flexibility in how they pay workers.

This new rule, however, would do away with this practice due to allegations that many of these workers are susceptible to exploitation by employers and not properly compensated. The governor’s office said in a statement on its website that many employers have difficulty keeping track of tips, and because they fluctuate, workers don’t always know when they are being underpaid.

“Complicated tip credit recordkeeping can make it difficult for employers to know whether they are meeting their obligations and can be a vehicle for wage theft when employers fail to pay workers properly,” the statement said. “Anecdotal evidence suggests that tips do not always make their way into workers' hands, further reducing their income, and the ‘topping up’ of tipped workers by their employers is difficult to enforce when records are not properly kept. This can also require the Department of Labor to expend extensive investigative resources to check records and calculations. This is not always intentional on the part of the employer, as it can be difficult to keep track of employee tips properly.”

Opponents, however, claim that doing away with the tip credit would hurt businesses that are already struggling to pay labor expenses, and it would further increase the pay gap between tipped front-of-house employees, who would earn tips in addition to the minimum wage, and back-of-house employees, who would only earn the minimum wage without tips. They further argue that this pay discrepancy makes it hard to recruit and retain back-of-house staff.

The New York State Department of Labor will host public hearings on the issue to gather input from workers, business owners, and community members. If the proposal passed, New York would join Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington as states that do not allow tip credits and require employees to be paid the same minimum wage as other employees regardless of tips.

This proposal comes after the federal Department of Labor’s announcement last week of a proposed rule that would roll back the Obama administration’s ban on pooling tips between front- and back-of-house to reduce the disparity between these workers. Both the proposal in New York and that of the federal government are mired in much of the same conflict between the rights of workers and their employees. Business communities nationwide will assess the way they pay employees in the coming months and change the way restaurants do business.