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Regulation for Tips: Tip Pooling and Tip Sharing Laws Explained

Employees working for restaurants and other hospitality companies who receive their pay partially in tips are often confused by their compensation. 

In some states, including New York, tips may be shared or pooled with other workers. This article will consider the tip pooling and sharing laws for New York City and how they affect an employee’s wages.

What is the minimum wage for New York City in 2022?

The minimum wage for employees working in New York City is $15 per hour as of 2022

Workers who receive tips as a regular part of their income may be required to participate in tip pooling and tip credits. Tip pooling and tip credit rules can be pretty complicated for both employers and employees to understand, and it’s not unusual for questions to arise concerning wages paid.

What is tip pooling?

According to New York law, tip pooling involves sharing tips among employees who participate in customer-facing activities for an employer in the hospitality industry, such as a restaurant. Employees who are required to participate in tip pooling should receive a written notice from their employer before starting their position. 

All tips received by employees who participate in a tip pool are combined with other workers’ tips. The tip pool is shared among employees who play a role in customer service. Typical roles held by employees who are eligible for tip pooling include:

  • Waitstaff
  • Bussers
  • Bartenders
  • Barbacks
  • Food runners
  • Hosts
  • Captains who provide food service to customers
  • Counter personnel who serve food and beverages

New York law stipulates that the position held by the employee does not determine whether they can pool tips; instead, the deciding factors are their actual duties and whether they are client-facing.  

What is tip sharing?

Tip sharing refers to a situation where a directly tipped employee provides some of their tips to another employee who has assisted in providing customer service. Employers may require tips to be shared, or the employee may choose to do so on their own. 

How do tip credits affect an employee’s earnings?

Tip credits are also covered in New York law. Under this law, employers can take a credit toward an employee’s minimum wage if the employee receives enough tips and has been appropriately notified of the tip credit. 

Employers of food service workers, which includes many restaurant employees, are granted $5 per hour of tip credits that may be applied to the employee’s minimum wage.

Individuals who work in the hospitality industry and who customarily receive tips but are not classified as food service workers may have a tip credit of $2.50 applied to their minimum wage if employed in New York City. 

For example, consider a member of a restaurant’s waitstaff who works a 40-hour week. During the week, the waiter earns $1,000 in tips. 

Since the waiter has made well over the minimum salary of $600 for the week, the employer may apply a $5 tip credit for each hour worked. Thus, the employer will pay $10 per hour for the 40 hours, or $400, while the employee will keep their tips as earnings, resulting in $1,400 in total pay that week.

The illustration grows complicated when tip pooling is brought into the picture. Under tip pooling, all tips are combined and shared among customer service employees. However, the amount apportioned to indirectly tipped employees cannot be more than is customary or reasonable. 

Are there other laws that affect tipped employees in New York City? 

Employers must keep accurate records concerning tip sharing and tip pooling. Employees should keep their own records. It’s not uncommon for employees to find themselves underpaid or subjected to a larger tip credit than they should have been.

Employees who believe that their employers may not be complying fully with New York Department of Labor laws can file a complaint with the state or seek the advice of a qualified employment attorney. 

When you need help with legal matters surrounding employment practices, Woods Lonergan, located in New York City, is well-versed in business law and can assist you in your case. Contact our office today.