What is Tip Credit in NYC?

While historically a "tip credit" allowed employers to count a portion of an employee's tips toward satisfying their minimum wage obligation, New York State, including New York City, eliminated this practice for all industries as of December 31, 2020. This means that employers in NYC are now required to pay their tipped employees the full state minimum wage, and tips are considered additional compensation.

Understanding the Concept of Tip Credit (Historical Context)

A tip credit, also known as a tip allowance, was an arrangement where the amount of tips earned by an employee could be used by their employer as a credit against the minimum wage requirements for that specific industry. In essence, it allowed employers to pay a lower direct wage than the standard minimum wage, with the expectation that an employee's tips would make up the difference and ensure they reached at least the full minimum wage when combined.

How it generally worked (before elimination):

• An employer would pay a "tipped minimum wage" or "cash wage" which was lower than the standard minimum wage.
• The difference between the lower cash wage and the full minimum wage was the "tip credit."
• If an employee's tips plus their cash wage did not meet the full minimum wage for a pay period, the employer was obligated to make up the difference.

The Elimination of Tip Credit in New York State (and NYC)

Effective December 31, 2020, New York State completed the elimination of the tip credit for all industries. This significant change means that all employers across the state, including those in New York City, are now mandated to pay their employees the full applicable minimum wage directly, without factoring in tips.

This policy shift ensures that tips are always received by the employee as income in addition to their regular minimum wage earnings. The New York State Department of Labor provides detailed information regarding minimum wage laws and employer obligations, confirming this change for all tipped workers.

Implications for Tipped Workers and Employers in NYC

The elimination of the tip credit has profound implications for both employees and businesses in New York City:

For Tipped Employees

• Guaranteed Full Minimum Wage: Employees are guaranteed to receive the full New York State minimum wage rate directly from their employer, irrespective of the tips they earn.
• Tips as Additional Income: All tips received are now entirely supplementary income, adding to their base wage, rather than being part of the calculation to meet minimum wage.
• Increased Income Stability: This change can lead to greater income stability, as an employee's base pay is not dependent on fluctuations in customer tipping.

For Employers

• Higher Payroll Costs: Employers must now budget for and pay the full minimum wage to all tipped staff, which represents a direct increase in payroll expenses compared to the previous system.
• Simplified Wage Calculation: Wage calculations become simpler, as there is no longer a need to track tip credits or make up differences if tips don't reach a certain threshold.
• Compliance: Employers must ensure strict compliance with the current minimum wage laws to avoid penalties.

Current Minimum Wage in New York City

As of January 1, 2024, the minimum wage in New York City (for employers with 11 or more employees) is $16.00 per hour. This is the rate that all employers, including those in the hospitality and service industries, must pay their employees directly, regardless of any tips received. For the most current and detailed information on minimum wage rates, refer to the official New York State Department of Labor website.

Key Takeaways

In conclusion, while the concept of a tip credit existed historically in New York, it has been fully abolished. Therefore, "tip credit in NYC" refers to a former practice, and today, all tipped employees in New York City must be paid the full applicable minimum wage directly by their employer.