Nationwide Law Firm Faruqi & Faruqi, LLP Looks at When Employers Can Use a Tip Pool in New York
In a tip pool, employees combine their tips and share them with a group of colleagues. Essentially, the idea is to reward all staff who, overall, contribute to the delivery of tip-worthy service.
In the state of New York, wage laws (NY Admin. 146–2.16(b)) allow employers to implement a tip pool. However, there are rules that govern tip pooling that some employers neglect to heed — some due to their ignorance, and others due to willful disregard.
According to nationwide law firm Faruqi & Faruqi, LLP, which focuses on complex civil litigation including securities, antitrust, wage and hour, personal injury and consumer class actions, as well as shareholder derivative and merger and transactional litigation, all employers in New York who wish to implement (or continue implementing) a tip pool must abide by the following four provisions:
1. Only eligible employees can participate in a tip pool.
Unlike other parts of the country, in New York state untipped employees are eligible to participate in a tip pool if, as part of their regular role, they contribute in some meaningful way to customer service. For example, food runners would be eligible to participate, and not just servers — even though the latter typically generate tips from customers, and the former do not.
“Central to this concept is the fact that managers and owners cannot unilaterally and arbitrarily determine who participates in a tip pool, and who does not participate in a tip pool, simply by changing an employee’s job title,” commented a spokesperson from Faruqi & Faruqi, LLP’s Employment Litigation Group. Faruqi & Faruqi, LLP is headquartered in New York, and maintains offices in California, Delaware, Georgia, and Pennsylvania. “What determines eligibility in New York is whether an employee contributes to customer service on a regular, ongoing basis.”
2. Managers cannot participate in tip pool.
Under Federal law (H.R. 1625) tips belong to workers and not to management. As such, neither managers nor supervisors can participate in a tip pool. This rule applies regardless of whether or not the employer takes a tip credit.
“Any manager or supervisor who violates this rule is subject to a civil penalty of up to $1,100 for each violation,” commented a spokesperson from Faruqi & Faruqi, LLP’s Employment Litigation Group. “In addition, the manager or supervisor may be liable for tips that were unlawfully kept.”
3. Employers must pay the prevailing state mandated minimum wage.
Employers in New York who implement a tip pool must ensure that employees ultimately earn at least the state mandated minimum wage, which is higher than the federal mandated minimum wage.
“In New York City, until December 31, 2020 the hourly cash wage for service workers is $12.50 and the hourly tip credit is $2.50, for a total minimum wage of $15.00 per hour,” commented a spokesperson from Faruqi & Faruqi, LLP’s Employment Litigation Group. “For food service workers, the current hourly cash wage is $10.00, and the tip credit is $5.00. Employers can exceed these compensation standards, but they cannot fall below them.”
4. Affected employees must be notified in advance.
Prior to implementing a tip pool, employers must provide employees with clear and sufficient notice, so that they can understand how the change is likely to impact them.
“Employers can legally oblige employees to participate in a tip pool,” commented a spokesperson from Faruqi & Faruqi, LLP’s Employment Litigation Group. “However, under no circumstances can an employer benefit from a tip pool.”
