TIPPED EMPLOYEES- THE TIP CREDIT EXPLAINED

I.  INTRODUCTION

Tipped employees are not paid like most other employees.  Most employers must pay all of your wages directly from the business.  However, employers (bosses) that employ tipped employees have the right to use a tip credit so they do not have to pay you the full minimum wage from the company.  The tip credit allows your employer (boss) to count the tips you are paid from your customers to satisfy part of their minimum wage obligation.  This means that your boss only has to pay you part of the minimum wage while your customer pays you the other part.  The following is a brief explanation to help you understand the tip credit.

The main concepts you need to understand are: (1) Who is legally a tipped employee, (2) What is the minimum wage, (3) What is the tip credit set by law, and (4) your rights as a tipped employee.

II. ARE YOU A TIPPED EMPLOYEE?

The first thing you need to know is what it means to be a “tipped employee” because your boss cannot use a tip credit unless you are legally considered a tipped employee. Under the law, you are a tipped employee when you customarily and regularly receive at least $30.00 per month in tips. Customarily and regularly means that you must be receiving tips on a regular basis. Examples of jobs that are clearly jobs of tipped employees are: (1) restaurant workers, (2) hotel workers, and (3) car wash employees.  If you are a tipped employee, then your employer (boss) may use the tip credit.

III. MINIMUM WAGE EXPLAINED

Under NY State & Federal Law, you have the legal right to receive at least the minimum wage for each hour that you work. This means that your employer (boss) cannot pay you less than the minimum wage rate set by law.  Additionally, you have the legal right to receive the greater of either the NY State or Federal Minimum Wage. As of this writing, the NY State Minimum Wage is $8.00 per hour and the Federal Minimum Wage is $7.25. Therefore, if you work in NY State, then your employer (boss) must pay you at least $8.00 per hour because it is the minimum wage of N.Y and it is greater than the Federal Minimum Wage.

IV.  THE TIP CREDIT

Now that you know the minimum wage, you can get a better understanding of the tip credit. As stated earlier, the tip credit is an amount of money your employer (boss) does not have to pay you directly. The NY State Law and Federal Law set the amount of the tip credit your employer (boss) may use. Under the Federal Law your employer (boss) can use a tip credit of $5.12 per hour. Under NY State Law, as of January 1, 2014, your employer (boss) can use a tip credit of $3.00 per hour.  However, the NY State tip credit will  increase as as follows:

1. Effective January 1, 2015- $3.75 per hour.

2. Effective January 1, 2016- $4.00 per hour.

So instead of paying you the minimum wage directly, your employer only needs to pay you the minimum wage less the tip credit, which comes out to $5.00 per hour (the $8.00 per hour minimum wage – the $3.00 per hour tip credit). This means that you must earn at least $3.00 in tips every hour you work so that you earn the minimum wage.  For example, in an 8 hour day you must earn at least $24.00 in tips (8 hours x $3.00 hour tip credit).  If you work in N.Y State then the N.Y State tip credit is the applicable tip credit.

V.  YOUR RIGHTS AS A TIPPED EMPLOYEE

You still have the right to receive minimum wage even if your employer (boss) uses the tip credit.  If you do not earn a sufficient amount in tips to earn $8.00 per hour, then your employer (boss) must pay you the amount needed for you to earn at least the minimum wage.

Every week, you need to make sure that you earned at least the minimum wage; here is how to figure it out:

  – Step 1-  (Hourly pay paid by your employer (boss) + Tips earned by customers).  Add up all the money paid to you by your employer in cash or check and the total amount you received in tips (this is before tax money) for the week.

  – Step 2-  Count the total amount of hours you worked during the week. Minimum wage is determined on a weekly basis, so you need to keep track of all the hours you worked during the week.

  -Step 3- Divide the total from step 1 by the total number of hours in step 2. If you divide the total amount of money you received in the week by total number of hours worked, then the result must be $8.00 or greater. If not, then you need to go to your employer and tell him/her that you were not paid enough.

VI.  CONCLUSION

So now that you know: (1) whether or not you are a tipped employee, (2) the minimum wage, and (3) the tip credit,  you can now ensure you are paid properly.  Remember to keep track of all your work hours and the money you earn each week to ensure you are being paid correctly.  If you find that you have not been paid properly, contact El-Hag & Associates, P.C today and we can help you get the unpaid wages or unpaid overtime that your boss has not paid you. Many times employers (bosses) steal your wages or overtime to which you are legally entitled. This is known as wage theft. Do not let it happen to you.  Make sure you protect your rights and your livelihood.

To learn more about your rights under the wage and overtime laws, disability law, or family & medical leave law, visit:

Http://www.Elhaglaw.com

El-Hag & Associates, P.C
777 Westchester Ave, Suite 101, White Plains, New York, 10604
• Http://www.Elhaglaw.com • Jordan@Elhaglaw.com • (914) 218-6190 (office) • (914) 206 -4176 (fax)

** Disclaimer- This blog post is applicable to employees working in NY State.  Some of the information is applicable outside of NY State, but you should check the laws of the state in which you work.  Additionally, this information is not intended as legal advice. If you have legal questions CALL OUR OFFICE. We do not want you to take any action relying on this information without being fully informed. You need to make sure that your circumstances protect you under the law before you act.