New York Labor Commissioner Approves Significant Changes to Wage and Hour Regulations

Posted: November 11, 2009

In March 2009, New York State Department of Labor Commissioner M. Patricia Smith convened a Wage Board to examine the Wage Orders currently applicable to New York State restaurant and hotel employers. In late September, the Wage Board proposed significant changes to the Wage Orders and provided the Commissioner with proposed language for a Wage Order combining the current restaurant and hotel industry wage orders. (See our article, New York State Wage Board Approves Revised Hospitality Industry Wage Order.) On November 5, 2009, Commissioner Smith issued an Order accepting many of the Wage Board’s recommendations, while rejecting the Wage Board’s proposed Wage Order.

The Commissioner stated that the Department of Labor will draft and issue regulations (i.e., a proposed consolidated Wage Order) through the standard regulatory process. Accordingly, it is unclear when changes to the Hospitality Wage Orders will go into effect. However, the Commissioner may elect to issue emergency regulations on or prior to January 1, 2010 as she has endorsed an increase to the minimum wage for tipped employees effective January 1, 2010.

Below we summarize the key portions of the Commissioner’s Order.

Consolidation of Current Wage Orders

Commissioner Smith accepted the Wage Board’s recommendation to consolidate the current restaurant and hotel industry Wage Orders.

Increased Minimum Wage for Food Service Workers

Commissioner Smith adopted the Wage Board’s recommendation to raise tipped food service workers’ minimum wage to $4.75 per hour on January 1, 2010 or the effective date of the regulations, whichever is later. On January 1, 2011, the rate will increase to $5.00. The Commissioner stated that these changes are a first step to equalizing the minimum wage due to all tipped employees.

Tip Credit Notification

The Commissioner also agreed that, as required under federal law, an employer must notify tipped employees of any tip allowance to be taken or the allowance is disallowed. Currently, such notification is not required under State law and an employer just needs to demonstrate that a tipped employee received sufficient tips to make up the difference between the regular minimum wage and the tip credit taken. Since the Commissioner rejected the Wage Board’s proposed regulations, which included specific language for the notification, it is unclear whether the State will require specific language.

Tip Pooling

The Commissioner accepted the Wage Board’s recommendation to allow New York employers to mandate tip pooling (i.e., requiring all service employees to pool and share tips). This is a significant change. Currently, a New York employer can only mandate tip sharing (i.e., requiring a specific server to share a percentage of tips with a busboy); it may not require that all employees pool tips.

The Commissioner rejected the Wage Board’s proposed regulations: (i) to impose specific procedural limitations on an employer who mandated pooling (such as barring the employer from setting percentages of the pool to be distributed); and (ii) to include lists of customarily tipped and non-customarily tipped employees (such as maitre’ d’s), seeming to indicate that an employer’s rights should be expansive. However, until the Commissioner issues her proposed Wage Order, an employer’s rights are uncertain.

The Commissioner rejected the Wage Board’s recommendation that employers who violate tip pooling rules should forfeit their ability to take a tip allowance for employees during the period of the violation. According to the Commissioner, such a penalty would be disproportionate to the infraction.

Service Charges

The New York Court of Appeals held in Samiento v. World Yacht that any service charge which the customer understands to be a gratuity must be distributed to service personnel. The Commissioner agreed with the Wage Board’s recommendation on this issue — that “any charge associated with a banquet or special function, on top of food and beverage, shall be presumed to be a charge purported to be a gratuity, unless the employer provides clear written notice to customers that the charge is not a gratuity and the form and content of such notice is sufficient to ensure that the reasonable customer would under that such charge is not a gratuity.”

The Commissioner, however, rejected the Wage Board’s proposal requiring identifying as an “administrative fee” the collected money that is retained by the employer. What the revised Wage Order will require is unclear, but for now New York employers that retain such monies should make clear in writing to the customer that such money is not a gratuity and will be retained by the employer.

Spread of Hours

Industry employers presently must pay employees for an additional hour at the minimum wage for any workday in excess of 10 hours. Nevertheless, if wages paid for hours worked exceed $7.25, a set-off applies (i.e., if an employee’s shift is 11 hours with a one-hour break, but the wages paid the employee for 10 hours equals 11 hours at the minimum wage, the obligation is satisfied). Commissioner Smith accepted the Wage Board’s recommendation to eliminate this set-off. Thus, when this change becomes effective, every non-exempt industry employee must be paid an additional hour at the minimum wage for each day in which the employee’s workday is longer than 10 hours, regardless of the standard hourly wage. For tipped employees, this additional hour must be paid at the full minimum wage. The Commissioner indicated that any “spread of hours” pay need not be included in the regular rate for overtime calculation.

Uniform Allowances

Commissioner Smith agreed with the Wage Board that New York State should follow federal regulations with respect to uniform maintenance costs. Where employees wear “wash and wear” clothing, employers therefore will be exempt from reimbursing individuals for the cost of laundering such items.

The Commissioner also concurred with the Wage Board’s recommendations for more specific guidance to define a required uniform and determine what items are part of an employee’s “ordinary wardrobe.” This saves industry employers money. However, where the allowance is applicable (i.e., for dry cleaning), the Commissioner said an employer must pay the allowance even if the employee’s wage greatly exceeds minimum wage.

Meals and Lodging Allowances

The Wage Board recommended that employers not be allowed to take credit towards satisfying minimum wage obligations for meals or lodging furnished to employees if the employer neglected to enter these credits into payroll records. The Commissioner rejected this recommendation, noting that it would “penalize[e] some employers for lack of sophistication or good advisors.”

Mandated Hourly Rate of Pay

The Commissioner agreed with the Wage Board that all non-exempt industry employees receive an hourly rate of pay, as opposed to a salary. Until the Commissioner issues regulations, the interpretation of this requirement is unclear.

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The Commissioner’s Order is effective 30 days after it is published in ten New York State newspapers. However, until regulations or emergency regulations are issued, the effective date is unclear. With that said, all New York State hospitality industry employers should begin preparing for these significant changes. Jackson Lewis will hold an educational session for clients and friends of the Firm in December. If you wish to attend, please contact the Jackson Lewis attorney with whom you regularly work or those listed with this article.