New York Wage and Hour Laws, NYS Department of Labor

Employee Tips – The Rule is “Hands Off”

Author: Stephen D. Hans
Stephen D. Hans & Associates, P.C.

Among the many wage and hour problems that often trip up unwary employers, issues relating to the handling of employee tips ranks near the top. There are a myriad of ways that a business can make mistakes when it comes to policies on tips and their effect on employees’ pay.

One common pitfall for some employers is embodied in Section 196-d of the New York Labor Law, which contains a blanket prohibition preventing any representative of management from taking any part of employee tips. Many employers incorrectly believe that as long as they are paying tipped employees above the minimum wage rate and are not taking a tip allowance reduction, the business or management can keep any tips left by customers for service employees. No matter how much a business chooses to pay its workers – even if it pays them $100/hour – the tipped employees must still be permitted to retain all tips received during their employment (in the hospitality industry, “tip pooling” and “tip sharing” arrangements are permitted, if certain specific requirements are met).

Employers – mostly restaurants, banquet halls and caterers – also frequently run into trouble when it comes to so-called mandatory “service charges” that are automatically added to a customer’s bill. According to case law, when an employer adds such a charge as a matter of policy and the customer is led to reasonably believe the charge constitutes compensation that will be paid to the tipped service workers in lieu of a gratuity, then all the services charges must be paid to the workers and CANNOT be retained by the business or its management.

Restaurants and other small businesses are not the only employers grappling with these types of problems, as evidenced by a recent lawsuit filed by food service workers at Yankee Stadium. According to a recent New York Daily News article, the workers have sued Legends Hospitality, which operates the food service at the stadium, alleging that employees did not receive any part of a mandatory “20% service charge” added to fans’ bills.

As always, our law firm continues to follow cases like this one, and others, with interest.

For assistance addressing employee tip issues and putting policies and procedures in place to ensure compliance with federal and state laws relating to employee tips, call us at (718) 275-6700 or email us to arrange a consultation to find out how our attorneys can help your business.

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