Tips and Gratuities in Restaurants

• Is my employer allowed to keep money given to me as a tip or gratuity?
  • Under Section 196-d of the NYLL, an employer is generally not permitted to keep any part of an employee’s tips or gratuities.
  • Further, under the FLSA, an employer is not permitted to take a “tip credit” in relation to minimum wage with respect to an employee if it retains any of the employee’s tips.  If an employer is making use of a “tip credit” to pay its employees less than minimum wage and improperly retains tips that should be given to or kept by employees, these employees may have a right to recover money in court under the FLSA.  See the questions about “tip credits” for more information.
  • Notably, section 196-d of the NYLL permits employers to keep tips or gratuities provided for “the checking of hats, coats or other apparel.”
• Who cannot take my tips?
  • Under Section 196-d of the NYLL, an employer is generally not permitted to keep any part of an employee’s tips or gratuities.
  • Further, under the FLSA, an employer is not permitted to take a “tip credit” in relation to minimum wage with respect to an employee if it retains any of the employee’s tips.  If an employer is making use of a “tip credit” to pay its employees less than minimum wage and improperly retains tips that should be given to or kept by employees, these employees may have a right to recover money in court under the FLSA.  See the questions about “tip credits” for more information.
  • The sharing or pooling of tips with other employees is sometimes permitted.  There are specific rules, however, about when employees are allowed to share or pool tips.  See the questions about “tipped employees,” “tip pooling,” and “tip sharing” for additional information.
• Are tips considered to be “wages”?
  • In some situations, tips are considered to be wages.  For example, when an employer takes a “tip credit” to satisfy part of the required minimum wage rate of $7.25 per hour, an employee’s tips are used in the calculation of “minimum wage.”  Here, the employee’s tips are considered to be part of the lowest wage that an employer can pay its employees.
  • In other situations, “wages” and “tips” are treated differently.  New York’s Hospitality Wage Order, for example, talks about a hospitality employee’s hourly rate as a wage, but it sometimes talks about tips and gratuities as something different than hourly wages.  Additionally, employers are only allowed to apply a set amount of tips toward the minimum wage as a “tip credit.”  Any tips received by an employee in excess of the amount of the “tip credit” many not be used by the employer to satisfy the “minimum wage” requirements.
• Does my employer have to pay me by the hour, even if I am getting tips?
  • Under the FLSA, employers can use a number of different methods to compensate employees.  These methods can include bonuses, “comp time,” flat-rate salaries, and tips.
  • Employees subject to New York’s Hospitality Wage Order, however, such as qualified waiters or other qualified restaurant workers, must be paid on an hourly basis for the hours that they work as a part of their pay, regardless of whether they receive tips.  The Order specifically states that covered employees cannot be paid by “on a daily, weekly, salary, piece rate or other non-hourly rate basis.”
• What is a “tip credit”?
  • Overview:  There are many rules and regulations that employers must follow when taking a “tip credit.”  Many employers, however, do not follow these rules and regulations.  If an employer fails to follow them, employees may have a right to recover money in court.
  • Definition:  A “tip credit” under the FLSA and the Hospitality Wage Order is a credit that an employer can take that permits the employer to pay qualified employees who receive tips a minimum hourly rate that is lower than the normal minimum wage rate of $7.25 per hour.  The employer is allowed to use the employees’ tips to make up the difference between the lower rate and the normal minimum wage rate of $7.25 per hour.  If, however, the employee does not collect enough in tips to be receiving the minimum wage of $7.25 per hour when the tips and the hourly payments are added together, the employer must provide additional payment to bring the employee’s wage up to $7.25 per hour.  For more information, see the questions about “tips and gratuities.”
  • Under the FLSA and the Hospitality Wage Order, in order to take a “tip credit” with respect to an employee, an employer must notify the employee that it intends to do so.  Further, the employer must follow specific requirements with respect to notifying the employee.  If an employer is making use of a “tip credit” with respect to certain employees and it fails to properly notify these employees that it is doing so, the employees may have a right to recover money in court.
  • Are employers allowed to make use of a “tip credit” for any employees or only for certain employees?
    • Employers are only permitted to make use of a “tip credit” with respect to employees that meet certain requirements.  These qualified employees are referred to as “tipped employees” under the FLSA and New York’s Hospitality Wage Order.  If an employer takes a tip credit with respect to an employee who is not considered to be a “tipped employee,” the employee may have a right to recover money in court.  See the questions about “tipped employees” for more information.
• How does a “tip credit” affect the “overtime” or “minimum wage” rules?
  • Tip Credits & Overtime
    • Under both the FLSA and the Hospitality Wage Order, a qualified employee is entitled to be paid “overtime,” regardless of whether or not the employee receives tips.  Under some circumstances, however, an employer is permitted to incorporate an employee’s tips into the calculation of the employee’s overtime rate.
    • Under New York’s Hospitality Wage Order, for example, a tipped employee is entitled to be paid at an overtime rate of “the employee’s regular rate of pay before subtracting any tip credit, multiplied by 1½ , minus the tip credit.”  An employer subject to the Order is not permitted to subtract the tip credit first and then multiply by one and one-half.  Similarly, under the FLSA, an employer is not permitted to subtract the tip credit from an employee’s regular rate of pay before multiplying the regular rate by one and one-half to get to the overtime rate.  
    • See the questions about “overtime” and “tips and gratuities” for more information.
  • Tips Credits & Minimum Wage
    • Employers are permitted to make use of a “tip credit” and pay qualified “tipped employees” a minimum hourly rate that is lower than the normal minimum wage rate of $7.25 per hour.  Employers are allowed to use the employees’ tips to make up the difference between the lower rate and the normal minimum wage rate of $7.25 per hour.
    • If, however, the employee does not collect enough in tips to be receiving the minimum wage of $7.25 per hour when the tips and the hourly payments are added together, the employer must provide additional payment to bring the employee’s wages up to $7.25 per hour.
    • See the questions about “minimum wage” and “tips and gratuities” for more information.
• How does a “tip credit” affect the rules about working more than 10 hours in a day?
  • Under New York’s Hospitality Wage Order, qualified employees whose workday is longer than 10 hours are entitled to extra pay.  For each workday that is longer than 10 hours, a qualified employee is entitled to receive one extra hour of pay at the current minimum wage rate of $7.25 per hour.  These rules are unaffected by the fact that an employee receives tips or the fact that an employer is making use of a “tip credit.”  For more information, see the questions about “tips and gratuities” and the questions about “working more than 10 hours in a day.”
• What is “tip pooling”?
  • Section 146-2.14 of New York’s Hospitality Wage Order defines tip pooling as “the practice by which the tip earnings of directly tipped employees are intermingled in a common pool and then redistributed among directly and indirectly tipped employees.”
    • Who is considered to be a “directly tipped employee” under New York’s Hospitality Wage Order?
      • Section 146-2.14(c) of the Hospitality Wage Order defines “directly tipped employees” as “those who receive tips from patrons or customers without any intermediary between the patron or customer and the employee.”
      • Who is considered to be an “indirectly tipped employee” under New York’s Hospitality Wage Order?
        • Section 146-2.14(d) of the Hospitality Wage Order defines “indirectly tipped employees” as “those employees who, without receiving direct tips, are eligible to receive shared tips or to receive distributions from a tip pool.”
  • Who is allowed to participate in a restaurant’s “tip pool”?
    • Section 146-2.16(a) of New York’s Hospitality Wage Order states that “[d]irectly tipped employees may mutually agree to pool their tips on a voluntary basis and to redistribute the tips among directly tipped employees and indirectly tipped employees who participated in providing the service.”  Additionally, section 146-2.14(e) of New York’s Hospitality Wage Order states that, to be eligible to participate in a tip pool, “employees must perform, or assist in performing, personal service to patrons at a level that is a principal and regular part of their duties and is not merely occasional or incidental.”
    • Under the FLSA, employers are only permitted to take a “tip credit” with respect to employees participating in an arrangement involving tip splitting, sharing, or pooling if all employees involved in the arrangement “customarily and regularly receive tips.”  If anyone else receives tips from such an arrangement, and the employer takes a “tip credit” with respect to the employees participating in the arrangement, the participating employees may have a right to recover money in court under the FLSA.
  • Is “tip pooling” legal?
    • “Tip pooling” is allowed under the FLSA and New York’s Hospitality Wage Order.  Employers, however, are required to follow the “tip pooling” rules.  Many employers do not follow these rules.  If an employer fails to follow them, employees who participated in tip pooling may have a right to recover money in court.
  • Do I have to participate in a “tip pool”?
    • New York’s Hospitality Wage Order allows covered employers to make participation in a tip pool mandatory for “food service workers,” within certain limitations.
• What is “tip sharing”?
  • Section 146-2.14 of New York’s Hospitality Wage Order defines tip sharing as “the practice by which a directly tipped employee gives a portion of his or her tips to another service employee or food service worker who participated in providing service to customers and keeps the balance.”
    • Who is considered to be a “service employee” under New York’s Hospitality Wage Order?
      • Section 146-3.3 of the Hospitality Wage Order states that a “service employee” is “an employee, other than a food service worker, who customarily receives tips at the rate of $1.60 or more per hour.”
      • Who is considered to be a “food service worker” under New York’s Hospitality Wage Order?
        • Section 146-3.4 of the Hospitality Wage Order states that a “food service worker” is “any employee who is primarily engaged in the serving of food or beverages to guests, patrons or customers in the hospitality industry, including, but not limited to, wait staff, bartenders, captains and bussing personnel; and who regularly receives tips from such guests, patrons or customers.”  A delivery worker is not considered to be a “food service worker,” but a delivery worker may be considered to be a “service employee.”
        • Who is considered to be a “directly tipped employee”?
          • Section 146-2.14(c) of New York’s Hospitality Wage Order defines “directly tipped employees” as “those who receive tips from patrons or customers without any intermediary between the patron or customer and the employee.”
  • Who is allowed to receive tips from “tip sharing”?
    • Under the FLSA, employers are only permitted to take a “tip credit” with respect to employees participating in an arrangement involving tip splitting, sharing, or pooling if all employees involved in the arrangement “customarily and regularly receive tips.”  If anyone else receives tips from such an arrangement, and the employer takes a “tip credit” with respect to the employees participating in the arrangement, the participating employees may have a right to recover money in court under the FLSA.
    • New York’s Hospitality Wage Order states that tips may be “shared” with “food service workers” or “service employees.”  Additionally, section 146-2.14(e) of New York’s Hospitality Wage Order states that, to be eligible to receive shared tips, “employees must perform, or assist in performing, personal service to patrons at a level that is a principal and regular part of their duties and is not merely occasional or incidental.”
      • Who is considered to be a “service employee” under New York’s Hospitality Wage Order?
        • Section 146-3.3 of the Hospitality Wage Order states that a “service employee” is “an employee, other than a food service worker, who customarily receives tips at the rate of $1.60 or more per hour.”
        • Who is considered to be a “food service worker” under New York’s Hospitality Wage Order?
          • Section 146-3.4 of the Hospitality Wage Order states that a “food service worker” is “any employee who is primarily engaged in the serving of food or beverages to guests, patrons or customers in the hospitality industry, including, but not limited to, wait staff, bartenders, captains and bussing personnel; and who regularly receives tips from such guests, patrons or customers.”  A delivery worker is not considered to be a “food service worker,” but a delivery worker may be considered to be a “service employee.”
  • Is “tip sharing” legal?
    • “Tip sharing” is allowed under the FLSA and New York’s Hospitality Wage Order.  Employers, however, must follow the “tip sharing” rules.  Many employers do not follow these rules, and if an employer fails to follow them, employees may have a right to recover money in court.
  • Do I have to share my tips?
    • New York’s current Hospitality Wage Order allows covered employers to require “food service workers” that are tipped directly by customers to share the tips they receive with other “food service workers.”  The “food service workers” who receive the shared tips, however, must have participated in providing services to customers.
• Who should get tips?
  • Under section 196-d of the NYLL, an employer is generally not permitted to keep any part of an employee’s tips or gratuities.
  • Additionally, under NYLL section 196-d and recent court cases, an employer is not allowed to keep any portion of a “service charge” if a reasonable customer of the employer would think that the payment was a gratuity or tip for an employee.  For information about who such a payment should be distributed to, see the questions about “services charges.”
  • Further, there are specific rules about who is permitted to participate in tip sharing or tip pooling arrangements.  For more information, see the questions about “tip pooling” and “tip sharing.”
• Does what my job is affect whether I am entitled to receive tips?
  • In some situations, what job an employee is performing can affect whether or not that employee should be receiving a tip distribution.
  • Under Section 196-d of the NYLL and recent court cases, an employer is not allowed to keep any portion of a “service charge” if a reasonable customer of the employer would think that the payment was a gratuity or tip for an employee.  Further, under section 146-2.18 of New York’s Hospitality Wage Order and recent court cases, if a reasonable customer of the employer would think that the payment was such a gratuity, the payment must be “distributed in full as gratuities to the service employees or food service workers who provided the service.”
    • Who is considered to be a “service employee” under New York’s Hospitality Wage Order?
      • Section 146-3.3 of the Hospitality Wage Order states that a “service employee” is “an employee, other than a food service worker, who customarily receives tips at the rate of $1.60 or more per hour.”
      • Who is considered to be a “food service worker” under New York’s Hospitality Wage Order?
        • Section 146-3.4 of the Hospitality Wage Order states that a “food service worker” is “any employee who is primarily engaged in the serving of food or beverages to guests, patrons or customers in the hospitality industry, including, but not limited to, wait staff, bartenders, captains and bussing personnel; and who regularly receives tips from such guests, patrons or customers.”  A delivery worker is not considered to be a “food service worker,” but a delivery worker may be considered to be a “service employee.”
  • Additionally, there are specific rules about who is permitted to participate in tip sharing or tip pooling arrangements.  For more information, see the questions about “tip pooling” and “tip sharing.”
• Who is considered to be a “tipped employee”?
  • Under New York’s Hospitality Wage Order, an employee is considered to be a “tipped employee” when an employer is taking a permissible “tip credit” with respect to that employee.  Employers are only permitted to take “tip credits” under the Order, however, for employees that qualify as “service employees” or “food service workers.”
    • Who is considered to be a “service employee” under New York’s Hospitality Wage Order?
      • Section 146-3.3 of the Hospitality Wage Order states that a “service employee” is “an employee, other than a food service worker, who customarily receives tips at the rate of $1.60 or more per hour.”
      • Who is considered to be a “food service worker” under New York’s Hospitality Wage Order?
        • Section 146-3.4 of the Hospitality Wage Order states that a “food service worker” is “any employee who is primarily engaged in the serving of food or beverages to guests, patrons or customers in the hospitality industry, including, but not limited to, wait staff, bartenders, captains and bussing personnel; and who regularly receives tips from such guests, patrons or customers.”  A delivery worker is not considered to be a “food service worker,” but a delivery worker may be considered to be a “service employee.”
  • Under the FLSA, employers are only permitted to take a “tip credit” with respect to “tipped employees.”  A “tipped employee” is defined in the FLSA as “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.”
  • What is a “traditionally tipped employee”?
    • “Tipped employees” under the FLSA or New York’s Hospitality Wage Order are sometimes referred to as a “traditionally tipped employees.”
• Why does it matter if I am a “tipped employee”?
  • Employers are only permitted to take a “tip credit” with respect to “tipped employees.”  If an employer takes a tip credit with respect to an employee who is not considered to be a “tipped employee,” the employee may have a right to recover money in court.  See the questions about “tip credits” for more information.
  • Additionally, under Section 196-d of the NYLL and recent court cases, an employer is not allowed to keep any portion of a charge such as a “service charge” if a reasonable customer of the employer would think that the payment was a gratuity or tip for an employee.  Further, under section 146-2.18 of New York’s Hospitality Wage Order and recent court cases, if a reasonable customer of the employer would think that the payment was such a gratuity, the payment must be “distributed in full as gratuities to the service employees or food service workers who provided the service.”  To be considered to be a “service employee” or “food service worker,” an employee must meet specific criteria such as regularly receiving tips.
    • Who is considered to be a “service employee” under New York’s Hospitality Wage Order?
      • Section 146-3.3 of the Hospitality Wage Order states that a “service employee” is “an employee, other than a food service worker, who customarily receives tips at the rate of $1.60 or more per hour.”
      • Who is considered to be a “food service worker” under New York’s Hospitality Wage Order?
        • Section 146-3.4 of the Hospitality Wage Order states that a “food service worker” is “any employee who is primarily engaged in the serving of food or beverages to guests, patrons or customers in the hospitality industry, including, but not limited to, wait staff, bartenders, captains and bussing personnel; and who regularly receives tips from such guests, patrons or customers.”  A delivery worker is not considered to be a “food service worker,” but a delivery worker may be considered to be a “service employee.”
• Are employees who receive tips entitled to be paid “overtime” or “minimum wage”?
  • Minimum Wage:  Employers cannot avoid the minimum wage laws simply because their employees receive tips during the course of their work.  Employers in New York are sometimes permitted, however, to use tips to satisfy part of the required minimum wage rate of $7.25 per hour, within certain limitations.  One such limitation, for example, is that employers who use tips to satisfy part of the required minimum wage rate with respect to an employee must be able to show that the employee earns at least minimum wage when the employee’s tips and regular pay are added together.  For additional information, see the questions about “minimum wage” and “tips and gratuities.”
  • Overtime:  Under both the FLSA and the Hospitality Wage Order, a qualified employee is entitled to be paid “overtime” regardless of whether or not the employee receives tips.  Under some circumstances, however, an employer is permitted to incorporate an employee’s tips into the calculation of the employee’s overtime rate.  See the questions about “overtime” and “tips and gratuities” for additional information.
• How are “tipped employees” affected by the wage and hour laws (the laws relating to “minimum wage,” tips and gratuities, hourly wages, etc.)?
  • Overview:  There are a number of rules and regulations that apply specifically to employees that regularly receive tips.   Many employers do not follow these rules and regulations.  If an employer fails to follow them, employees who work for the employer may have a right to recover money in court.  See the questions about “tips and gratuities” for more information.
  • Minimum Wage & Tip Credits:  Employers are in some situations permitted to make use of what is called a “tip credit” to pay employees who receive tips less than minimum wage, provided that they follow certain rules when doing so.  See the questions about “minimum wage,” “tip credits,” and “tips and gratuities” for more information.
  • Employers Generally Not Permitted To Keep Employee Gratuities:  Under Section 196-d of the NYLL, an employer is generally not permitted to keep any part of an employee’s tips or gratuities.
  • Tip Sharing & Tip Pooling:  Additionally, there are rules and regulations that may apply to “tip sharing” and “tip pooling.”  See the questions about “tip sharing,” “tip pooling,” and “tips and gratuities” for more information.
• Can my employer keep tips or gratuities that are given to a host or maitre d’?
  • Under Section 196-d of the NYLL, an employer is generally not permitted to keep any part of an employee’s tips or gratuities, including tips given to an employee who is a host or maitre d’.
  • Further, under the FLSA, an employer is not permitted to take a “tip credit” in relation to minimum wage with respect to an employee if it retains any of the employee’s tips.  This rule applies to employees who are hosts and maitre d’s.  If an employer is making use of a “tip credit” to pay its employees less than minimum wage and improperly retains tips that should be given to or kept by employees, these employees may have a right to recover money in court under the FLSA.  See the questions about “tip credits” for more information.
• Can my employer keep tips or gratuities that are given to a waiter or waitress?
  • Under Section 196-d of the NYLL, an employer is generally not permitted to keep any part of an employee’s tips or gratuities, including tips given to an employee who is a waiter or waitress.
  • Further, under the FLSA, an employer is not permitted to take a “tip credit” in relation to minimum wage with respect to an employee if it retains any of the employee’s tips.  This rule applies to employees who are waiters or waitresses.  If an employer is making use of a “tip credit” to pay its employees less than minimum wage and improperly retains tips that should be given to or kept by employees, these employees may have a right to recover money in court under the FLSA.  See the questions about “tip credits” for more information.
• Should I receive any money if my employer makes a customer pay a 20% “service charge”?
  • Under Section 196-d of the NYLL and recent court cases, an employer is not allowed to keep any portion of a “service charge” if a reasonable customer of the employer would think that the payment was a gratuity or tip for an employee.
  • Further, under section 146-2.18 of New York’s Hospitality Wage Order and recent court cases, if a reasonable customer of the employer would think that the payment was such a gratuity, the payment must be “distributed in full as gratuities to the service employees or food service workers who provided the service.”
    • Who is considered to be a “service employee” under New York’s Hospitality Wage Order?
      • Section 146-3.3 of the Hospitality Wage Order states that a “service employee” is “an employee, other than a food service worker, who customarily receives tips at the rate of $1.60 or more per hour.”
      • Who is considered to be a “food service worker” under New York’s Hospitality Wage Order?
        • Section 146-3.4 of the Hospitality Wage Order states that a “food service worker” is “any employee who is primarily engaged in the serving of food or beverages to guests, patrons or customers in the hospitality industry, including, but not limited to, wait staff, bartenders, captains and bussing personnel; and who regularly receives tips from such guests, patrons or customers.”  A delivery worker is not considered to be a “food service worker,” but a delivery worker may be considered to be a “service employee.”
  • What is the industry practice at restaurants for what happens to a payment for a “service charge” or a “fixed gratuity”?
    • For a number of years, there was a practice in various food-service establishments of charging a fee to customers such as a “service charge” that customers were likely to think was a gratuity for service workers, but not distributing all or some of this fee to the service workers.  Although this practice may be changing, many establishments are facing or could be facing lawsuits as a result of the practice.  If you are an employee who has been affected by a practice such as this and have not received tips or gratuities that you are entitled to, you may have a right to recover money in court.
  • Is a “management fee,” a “fixed gratuity,” or an “administrative charge” the same thing as a “service charge”?
    • Under Section 196-d of the NYLL and recent court cases, an employer is not allowed to keep any portion of a charge, regardless of what the charge is called, if a reasonable customer of the employer would think that the payment was a gratuity or tip for an employee.
• Are there any exceptions to the rules about tips and gratuities?
  • Only workers who are considered to be “employees” can recover money in court for violations of the rules regarding tips and gratuities set out in the FLSA, the NYLL, and the supporting regulations, such as the Hospitality Wage Order.  Workers who are considered to be “independent contractors” will not be able to recover for violations of these rules.  See the questions about the difference between “employees” and “independent contractors” for additional information.