Tip Credit

A restaurant must provide notice before paying waitstaff a tipped minimum wage.

Under the Fair Labor Standards Act (FLSA), a restaurant can take a “tip credit” towards its minimum wage obligation for tipped employees equal to the difference between the required cash wage (which must be at least $2.13 under the FLSA) and the federal minimum wage of $7.25 per hour.  It is important to note that certain states provide a higher minimum wage for servers, including New York, where the minimum wage rate and tip credit amounts depend on where the restaurant is located and, in New York City, the size of the restaurant:

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NY City – Restaurant (11 or more employees)

 - Full. Min. Wage Rate (as of 12/31/20)

• $15.00 per hour
• Up to $5.00, with $10.00 per hour in house pay (Tip Credit)

Long Island and Westchester County

--- Full. Min. Wage Rate (as of 12/31/20)

• $14.00 per hour
• Up to $4.65, with $9.35 per hour in house pay (Tip Credit)

Rest of New York State

--- Full. Min. Wage Rate (as of 12/31/20)

• $12.50 per hour
• Up to $4.15, with $8.35 per hour in house pay (Tip Credit)

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In order for a restaurant to take a tip credit, it must provide notice of the following information to a tipped employee:

1. the amount of cash wage the employer is paying a tipped employee, which is as little as $2.13 per hour in some states but an amount ranging from $8.35 to $10.00 per hour in New York;
2. the additional amount claimed by the employer as a tip credit, which in New York depends on location and ranges from $4.15 to $5.00;
3. the tip credit claimed by the employer cannot exceed the amount of tips actually received by the tipped employee;
4. all tips received by the tipped employee are to be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and
5. the tip credit will not apply to any tipped employee unless the employee has been informed of all of the above tip credit provisions.