New York State may end Minimum Wage Tip Credit

In most of the country, businesses can pay their tipped workers—such as servers and bartenders—only $2.13 per hour, so long as the tips the workers make raise their hourly rate to at least $7.25, the federal minimum wage. This is called “tipped minimum wage,” where the employer pays only $2.13 per hour, and uses the employee’s tips as a “tip credit” which makes up the difference. If the worker’s tips don’t make up the difference, the employer is required to pay it.

Some cities and states have higher minimum wages, but still allow employers to take a tip credit. For example, New Jersey’s state minimum wage is $8.60 per hour, and New York State’s minimum wage ranges from $10.40 to $13.00 per hour, depending on where you live within the state. Both states allow employers to take a tip credit. In New York City, the tipped minimum wage for businesses with 11 or more workers is $8.65, and the minimum wage for non-tipped workers is $13.00.

In contrast, some states do not allow employers to take a tip credit. Alaska, California, Washington, Oregon, Nevada, Montana, and Minnesota require all workers, tipped or not, to receive the same minimum wage.

Tipped workers are especially vulnerable to wage theft and harassment, because their bosses can illegally withhold or pocket tips from workers who, for example, don’t accept sexual advances, threaten to report harassment, don’t know that their bosses are not allowed to take a portion of their tips, or simply because the bosses secretly take a portion of the tips and the workers are unaware.

Further, because tips make up such a large proportion of of these workers’ income, it can be hard for them to anticipate their monthly income, leave them subject to harassment from customers, and to lose tip income from customers tip less--or not at all--due to racial, religious, gender, or sexual orientation bias against the employee.

New York Governor Andrew Cuomo is now considering whether to eliminate this problem for workers in New York State by raising the minimum wage for tipped workers to the same level as all other workers, and has scheduled public hearings around the state to for input on whether minimum wage tip credits should be ended in New York.

Those in the restaurant and other tipped industries argue eliminating the tip credit would harm small businesses, force employers to cut jobs, and decrease workers’ income because customers would tip less. Although, according to the Economic Policy Institute, workers in states that have eliminated the tipped minimum wage earn more money and are less likely to fall below the poverty line than those in states which allow the tipped minimum wage.

We will continue to monitor this as it develops.