Could higher wages for tipped workers mean the end of gratuities in New York?

That’s one of the dangers that restaurant employees see as New York mandates a new minimum wage for tipped workers. Although the state’s current minimum for these workers—$4.90, $5, or $5.65 per hour, depending on wage class—is already above the federal rate of $2.13, the acting commissioner of the state’s Labor Department announced this week that he would follow recommendations to increase the wage to $7.50 at the end of 2015. That’s below the standard $9 minimum wage in New York, but it amounts to a 50 percent increase for a large segment of the labor market.

“After receiving testimony divided between those in favor of eliminating the tip credit and those opposed to any change, I believe this recommendation strikes the proper balance,” Acting Commissioner of Labor Mario Musolino wrote in a statement on the decision. “It increases wages for those who have been without a raise for far too long and completes the goal that was postponed in 2009 of establishing a single rate for all tipped workers.”

The New York State Restaurant Association (NYSRA), which opposed the wage change, noted that Musolino’s decision seemed to disregard appeals from the hospitality industry that he take less drastic action.

“It’s troubling that the acting commissioner ignored legislative precedent and the pleas of nearly 1,000 hospitality-industry representatives who asked him for a moderate increase phased in over time,” NYSRA President and CEO Melissa Fleischut said in a statement. “By rubber-stamping an extreme, unprecedented 50 percent increase, it becomes hard to believe New York is really ‘open for business.’”

Are Tips Done For?

In a follow-up post in the members-only section of its website, NYSRA noted that it has limited legal recourse [member login required] against the change but is exploring its options. It added that restaurants do have choices in how they handle the pay bump—and one of those is to get rid of tips altogether.

“As far as options for your business go, come the first of next year you will have two options: Pay all tipped workers $7.50 per hour, or pay all employees full minimum wage and move away from the tipping system,” the association stated.

A recent NPR report noted that restaurants in New York City have already been experimenting with new wage models, including some that rely on a no-tip policy and, in one case, a 20 percent fee on customers’ bills that goes toward employees’ salaries.

NYSRA cautioned restaurants to take care if they add fees to bills, noting that “it is legally risky because of the complex regulations regarding auto-gratuities.” If restaurants do choose that approach, it recommends using an “administrative fee,” part of which can go to management, rather than a “service charge,” which must go to employees.

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