On December 16, 2010, the New York State Department of Labor (NYSDOL) issued a final Wage Order (Wage Order) outlining new regulations for employers in the hospitality industry regarding service employees and food service workers which will become effective January 1, 2011.  The NYSDOL has granted employers a grace period until February 28, 2011 to comply with all of the payroll and record-keeping obligations which these new regulations impose.  By March 1, 2011, all New York employers covered under the order must have complied with all of the regulations in adjusting employees' pay retroactively to January 1, 2011.

In a relatively short period of time employers must be in compliance with these new NYSDOL regulations which require many significant adjustments for employers.  In some circumstances employers may be required to engage in a complete reorganization of their current working systems regarding payroll and record-keeping with regard to food service workers and service employees.

The Wage Order defines the "hospitality industry" as any "restaurant or hotel" as defined within the Order.  It further clarifies a food service worker as one who is "primarily engaged in the serving of food or beverages to guests, patrons or customers in the hospitality industry . . . who regularly receives tips from such guests, patrons or customers."  The Order expressly excludes delivery workers from this definition.  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."  Classification as to whether an employee is a service employee or a non-service employee is to be on a weekly basis.

The following is a discussion of some of the many regulations placed on employers contained within the NYSDOL's Hospitality Wage Order.

Click Here to Link Directly to the New York State Department of Labor Website. 

Increased Minimum Wage and the  

Resulting Effect on Allowable Tip Credits

• The Wage Order requires that all service employees be paid on an hourly basis and increases the direct payment to the employee by increasing the minimum wage and overtime he or she must receive when measured against the allowable tip credit. 
•  The Wage Order mandates that a service employee is to receive no less than $5.65 per hour and his or her tip credit shall not exceed $1.60 per hour so long as the total tips the employee receives, combined with his wages, is not less than the minimum wage of $7.25 per hour. 
•  A food service worker must receive $5.00 per hour and his or her tip credit is not to exceed $2.25 per hour so long as the total of tips and wages received is not less than $7.25 per hour.
•  The Order requires a slightly lower minimum wage and a larger tip credit for service employees in resort hotels.  These raised minimum wage rates have the effect of reducing the amount of tip credit that the employer may impose.  Eligibility for receiving tips is to be based on the employee's duties and not on his or her title alone.
• Additionally, when tips are charged on a charge card, the employer is permitted to deduct from the tip paid to the employee only his share of the percentage of the service charge.

Calculating Overtime with Tip Credits

• With regard to overtime, the Wage Order mandates that an employer must calculate the overtime of a service employee or food service worker at one and one-half his hourly rate before the tip credit is taken and then subtract the permitted tip credit for each hour worked in total. 
• The Wage Order offers examples with regard to methods for overtime calculations regarding tipped employees.

Meals and Lodging

• An employer may consider meals and lodging as part of an employee's compensation but the new regulations limit the allowable amount that can be deducted from an employee's wages. 
•  Meals cannot be valued at more than $2.50 per meal and are limited to one meal per 5 hour shift per day and may not exceed two meals on any one day. An employee working a split shift may be credited for one meal per shift. 
•  Lodging credits in restaurants shall not be valued at more than $1.50 and $1.75 per day for food service workers and other workers respectively, and $9.60 and $11.30 per week respectively.
• Lodging credits in all-year hotels shall not be valued at more than 35 cents per hour. 
•  In resort hotels lodging and three meals per day shall be valued at $13.75 and $16.25 per day for food service workers and all other workers respectively.

Spread of Hours and Sidework

• The Wage Order mandates that employers pay all employees covered by the Order an extra hour, at the basic minimum hourly rate, for a workday which has a start time and an end time, or "spread of hours," that spans greater than ten hours, regardless of actual time worked.  The additional hour cannot be offset by any other meal or lodging credits. 
•  Similarly, the Order limits an employer's ability to take a tip credit where the employee performs tipped and non-tipped duties within the same day. 
•  If the service employee or food service worker performs a non-tipped duty for two hours or twenty percent of an eight hour shift, whichever is less, the employer may not take a tip credit from the employee's minimum wage for that day.

Some Favorable Changes for Employers:  

Tip Pooling/Sharing and the "Wash and Wear" Exception

There are some regulations in the Wage Order which tend to benefit New York employers:

•  The Wage Order provides that an employer is now permitted to mandate tip pooling or tip sharing between employees.  It does, however, limit the percentage to be pooled to that which is "customary and reasonable." 
•  Additionally, the Order provides the employer with a "wash and wear" exception to the employer's responsibility to maintain, or pay to maintain, the employee's uniforms.  If the uniforms are made of "wash and wear" materials, may be washed and dried with the employee's personal garments, do not require professional laundering, ironing or daily washing, and are provided to the employee "in sufficient number," an employer will be relieved of the cost to maintain the employee's uniform.

Record-Keeping and Notice Requirements

In the Wage Order, the NYSDOL imposes additional record-keeping and notice requirements for the employer. 

•  The employer must notify the employee, in writing, prior to the start of employment, of his or her regular hourly rate of pay, rate of overtime and the amount of tip credit to be taken if applicable. 
•  It must also include the employee's regular payday.
• The notice must inform the employee that the employer is required to pay the employee extra pay if the tips fail to raise the employee's pay to minimum wage.
• Such notice must be in English as well as in any other language that the employee speaks as his or her primary language.
• This notice is also required if any changes are made during the course of employment.
• The employer must require an acknowledgment of receipt of such notice from the employee which must be kept by the employer for at least six years.

This acknowledgment will satisfy the mandates of the rule and also serve to meet the employer's burden of proving that he has, in fact, complied with the regulations.  The Wage Order provides a sample notice and acknowledgment form which may be used by the employer in fulfilling this obligation.

Every employer must "establish, maintain and preserve" weekly payroll records of its employees for at least six years.

• The regulation outlines, in detail, all information which must be contained in such records, basically requiring the employer to outline all of the characteristics and conditions of the particular employee's pay.
• There are additional record-keeping requirements for an employer who operates a tip pooling or tip sharing system which must be made available to the tipped employees for review.
• The employer's records must also include whether the employee's uniforms will be maintained by the employer. 

Additionally, the NYSDOL requires employers to give notice to customers in the context of special events or  banquet contracts and agreements.  The employer must inform the customer of any administrative charges that are "not purported to be a gratuity."  The employer bears the burden to show that notice was in fact given to the customer in a manner "sufficient to ensure that a reasonable customer would understand that such charge was not purported to be a gratuity."  The Order outlines what is considered adequate notification.  This notice must be clearly delineated where notice of such administrative charges are listed along with gratuities.  Any charge which is "purported to be a gratuity" must be recorded and kept by the employer for at least six years.

Recommendations

The NYSDOL Wage Order imposes a large task for New York employers in the hospitality industry.  Within a fairly short period of time, employers in this industry must revise their entire payroll and record-keeping systems making many significant changes.

• Employers should act promptly to educate and train all employees responsible for managing and executing employee payroll.
• Employers should update record-keeping policies and train all employees whose duties entail record-keeping for current employees, as well as new hires, accordingly.
• Additionally, employers should update all special event contracts to ascertain compliance with the notice requirements to customers regarding administrative charges and gratuities.
• Furthermore, employers must promptly comply with all notice requirements regarding its employees as mandated by the Order.

Nukk-Freeman & Cerra, P.C. is available to assist you through this process.  If you have any questions regarding how this new regulation may affect your business or how to implement these new requirements, feel free to contact the Nukk-Freeman & Cerra attorney with whom you normally work.