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Proposed Hospitality Industry Wage Order Would Mandate Significant Changes for New York Restaurants and Hotels

  • October 18, 2010

On October 20, 2010, the New York State Department of Labor will submit a consolidated Hospitality Industry Wage Order for publication in the State Register.  The Wage Order, if adopted, would impose additional costs on employers while modifying current standards in certain areas such as tip pooling, laundry allowances and spread of hours pay. A 45-day public comment period will follow publication. 

The NYSDOL’s proposed Wage Order is the result of a Wage Board convened by then-State Labor Commissioner M. Patricia Smith (currently U.S. Solicitor of Labor) in early 2009 to examine the Wage Orders currently applicable to New York State restaurant and hotel industry employers.  In late September 2009, after hearings and review of written comments submitted by interested parties (including a submission from Jackson Lewis on behalf of its clients), the Wage Board proposed a consolidation of the current Restaurant and Hotel Industry Wage Orders with significant changes to existing  requirements.  It also provided the Commissioner with proposed language for such a consolidated Wage Order.  (See New York State Wage Board Approves Revised Hospitality Industry Wage Order.) On November 5, 2009, Commissioner Smith accepted many of the Wage Board’s recommendations, but rejected the Wage Board’s proposed Wage Order and stated that the NYSDOL would issue a proposed Wage Order of its own. (See New York Labor Commissioner Approves Significant Changes to Wage and Hour Regulations.)
Below and on this chart we highlight the most significant changes to current requirements contained in the proposed Wage Order and compare its provisions with current law and then-Commissioner Smith’s November 2009 announcement. (We do not address every item contained in the proposed Wage Order.)

Consolidation of Current Wage Orders

[CURRENT LAW] While many of their provisions are similar, separate Wage Orders govern the restaurant and hotel industries.

[NOVEMBER 2009] Commissioner Smith accepted the Wage Board’s recommendation to consolidate the current restaurant and hotel industry Wage Orders. 

[PROPOSED ORDER] The Proposed Hospitality Wage Order (“Proposed Order”) would consolidate the current restaurant and hotel industry Wage Orders.

Increased Minimum Wage for Food Service Workers

[CURRENT LAW]  Food service workers must be paid at least $4.65 per hour because a $2.60 credit is permitted against the standard minimum wage. (A higher minimum wage requirement of $4.90 is applicable to delivery personnel and other non-food-service employees for whom a tip credit can be taken.)

[NOVEMBER 2009] 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 a new order, whichever was later. On January 1, 2011, the rate would increase to $5.00.  The Commissioner stated that these changes would be a first step in equalizing the minimum wage due to all tipped employees.

[PROPOSED ORDER] If the Proposed Order takes effect prior to the end of 2010, a food service employee must receive a wage of no less than $4.75 per hour. The tip credit taken could not exceed $2.50 per hour and food-service employees must receive at least $2.50 per hour in tips. On January 1, 2011, the rate would increase to $5.00 with a permissible tip credit of no greater than $2.25 per hour.

For non-food-service employees (except those in resort hotels), a service employee such as delivery person would be required to receive at least $5.65 per hour.  No effective date is noted.   This amount is reduced to $4.90 per hour for service employees in resort hotels.

Tip Credit Notification

[CURRENT LAW]  While required by federal law, there is no specific obligation to notify tipped employees that a tip credit is taken against the standard minimum wage.  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.

[NOVEMBER 2009] The Commissioner agreed that, as under federal law, an employer must notify tipped employees of any tip allowance to be taken or the allowance is disallowed.  The Commissioner rejected the Wage Board’s proposed regulation, which included specific language for the notification.

[PROPOSED ORDER] The Proposed Order contains a provision requiring that a covered employer notify an employee of any tip credit to be taken prior to the start of employment. The Department included within the Proposed Order a sample form.  This appears to be merely a modified version of the standard new hire notice that all New York employers are required to provide.  Vitally, however, the Proposed Order also requires this notice to be provided prior to any change in the hourly rate of pay.

Tip Pooling

[CURRENT LAW]  While permitted by federal law, mandatory tip pooling (i.e., requiring all service employees to pool and share tips) is prohibited in New York.  Mandatory tip sharing (i.e., requiring a server to share a percentage of gratuities with a busser) is permitted.

[NOVEMBER 2009] The Commissioner accepted the Wage Board’s recommendation to allow New York employers to mandate tip pooling.  However, the Commissioner rejected the Wage Board’s proposed regulations, which would have imposed specific procedural limitations on an employer who mandated pooling (such as barring the employer from setting percentages of the pool to be distributed) and created a presumption that certain positions, such as maitre’ d’s, cannot participate in a tip pool as they are not customarily tipped.  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, stating that such a penalty would be disproportionate to the infraction.

[PROPOSED ORDER]  Employers may require food service workers to join a tip pool and can set the percentage which each occupation may receive from the tip pool. The Proposed Order explicitly states that only food service workers may participate in the tip pooling arrangement. Food service workers include, but are not limited to, wait staff, bartenders, captains who provide direct food service to customers and bussing personnel.  Furthermore, there are extensive recordkeeping requirements for a tip pooling system.  Employers are required to maintain records for at least six years which include a daily log of gratuities collected by every employee on every shift, occupations which are subject to the tip pooling system, the percentage each occupation is to receive under the system and the amount each employee receives, by date.

A covered employer retains the right to mandate tip sharing.  Employees must handle all transactions themselves.

Service Charges

[CURRENT GUIDANCE]  The New York Court of Appeals in Samiento v. World Yacht held that any service charge which the customer understands to be a gratuity must be distributed to service personnel.  There is no guidance in any Wage Order, however, opinion letters issued by the DOL indicate that in order for an employer to lawfully retain any service charge and not distribute it to service personnel, the employer must clearly advise the consumer that the service charge is not a gratuity and that the monies so collected are not distributed in to service personnel.

[NOVEMBER 2009] The Commissioner accepted 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 for mandatory language that must be used by businesses intending to retain any such monies or distribute such monies in whole or part to non-service personnel. 

[PROPOSED ORDER]  The Proposed Order requires any charge retained by the employer to be specifically identified as neither a gratuity nor a tip. The employer must show by clear and convincing evidence that it has satisfied this requirement. The notice must be contained in a contract or agreement with any customer and also must be printed on a menu or bill.  Further, the notice must be printed in at least a 12-point font.  Any combination charge (i.e., part distributed gratuity and part retained by the employer) must be delineated carefully and any retained amount must be specifically identified as neither a gratuity nor a tip.

Spread of Hours

[CURRENT LAW]   Industry employers must pay employees an additional hour at the minimum wage for any workday in excess of 10 hours. Nevertheless, if wages paid for hours worked exceed minimum wage, 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). 

[NOVEMBER 2009] Commissioner Smith accepted the Wage Board’s recommendation to eliminate this set-off (i.e., every non-exempt 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).  The Commissioner indicated that any “spread of hours” pay need not be included in the regular rate for overtime calculation.

[PROPOSED ORDER] The Proposed Order states that the spread of hours will apply to all employees working in restaurants or all-year hotels and that an employee’s rate of pay is irrelevant. The additional hour of pay paid pursuant to the spread of hours provision cannot be offset by a meal credit nor must it be considered in connection with calculating the regular rate for overtime pay calculations.  

As an aside, while the general call-in-pay requirement remains unchanged, it also would not be subject to set-off.

Uniform Allowances

[CURRENT LAW]   An employer must provide a weekly cleaning allowance for any uniform that the employee is required to launder.  There is no “wash and wear” exemption.  A uniform is generally defined as any clothing that an individual would not wear in non-work settings (i.e., part of “ordinary wardrobe”).  As with spread of hours, a set-off applies and no allowance is due if weekly wages exceed minimum wages for all hours worked by the amount of the allowance.

[NOVEMBER 2009] Commissioner Smith agreed with the Wage Board that New York State should adopt the “wash and wear” exemption applicable under federal law and not require employers to provide any allowance for the cost of laundering such items.  The Commissioner also concurred with the Wage Board’s recommendations to provide employers with more specific guidance as to what constitutes a “uniform”.  As with spread of hours, the Commissioner stated that no set-off should apply and, if due, the allowance must be provided regardless of the employee’s hourly wage. 

[PROPOSED ORDER] The Proposed Order provides for a “wash and wear” exemption.  Thus, an employer is not required to pay for the cost of laundering uniforms which can be washed with other personal garments, do not require dry cleaning or other special treatment and are given to the employee in adequate number (or if the employee is reimbursed for buying a sufficient number of uniforms).  If an employee is required to purchase a uniform, the employer must reimburse him or her by the next payday.  Additionally, the uniform allowance applies to all employees and is not subject to any offset.

A uniform does not include clothing that may be worn as part of an employee’s ordinary wardrobe, which is defined as “ordinary basic street clothing selected by the employee where the employer permits variations in details of dress.”  It is not clear what variations in details of dress means and hopefully this issue will be clarified in light of public comments.

Even if it is a uniform, no allowance is required if the employer makes available frequent use of a free laundry service and informs employees of such in writing.

Meals and Lodging Allowances

[CURRENT LAW]   An employer may take a credit against the minimum wage for meals and lodging.

[NOVEMBER 2009] The Commissioner rejected the Wage Board’s recommendation to prohibit employers from taking a credit if the employer neglected to enter these credits into payroll records noting that it would “penaliz[e] some employers for lack of sophistication or good advisors.”

[PROPOSED ORDER]  The Proposed Order still enables an employer to consider meals as part of wages. However, if the Proposed Order becomes effective prior to the end of 2010, employers may not value meals more than $2.25 per meal for food service workers and $2.50 per meal for all other workers.  Effective January 1, 2011, the meal allowance would be $2.50 per meal for all workers.  The Proposed Order does not clarify if the meal must be offered or actually accepted for the credit to be taken.  A meal is specifically defined as including at least one type of food from four food groups.

Mandated Hourly Rate of Pay

[CURRENT LAW]   An industry employer is permitted to pay its non-exempt employees a salary as long as overtime hours are paid at the rate of time and a half the regular rate of pay. 

[NOVEMBER 2009] The Commissioner agreed with the Wage Board that all non-exempt industry employees must receive an hourly rate of pay, as opposed to a salary. 

[PROPOSED ORDER]  The Proposed Order specifies that all employees covered by the wage order must be paid hourly rates of pay.  Employers may not pay employees on a salary basis.  Exempt administrative, executive and professional employees are not covered by the wage order.  Failure to provide an hourly rate of pay will result in calculation of an hourly rate based on the lesser of a 40-hour workweek or the number of hours worked in the workweek. 

Other Provisions in the Proposed Order

  • The Proposed Order contains an example of how overtime should be calculated for tip-credited food service workers.  In essence, the example indicates that the same tip credit must be taken for overtime hours as is taken for non-overtime hours.
  • Pursuant to the Proposed Order, no tip credit may be taken for any day in which the lesser of 2 hours or 20% of the shift is spent working in a non-tipped occupation.  It appears that the phrase non-tipped occupation encompasses non-direct service duties such as food preparation (e.g., filling ketchup bottles), but the Proposed Order is not clear on this point.
  • If a meal period is required (i.e., if the shift is more than 6 hours), an employee must be provided a meal or permitted to bring his or her own food and consume it on premises.
  • The Proposed Order contains a new provision, consistent with existing NYSDOL Opinion Letters, stating that an employer need not reimburse an employee for the amount a credit card company charges to process a gratuity.  There is no guidance how to handle this charge when different credit card companies charge different processing fees.
  • The Proposed Order reiterates that all records must be kept for 6 years.
  • Under the Proposed Order overtime is due to all covered employees after 40 hours of work.  Under the current Hospitality Order, overtime is due for nonresidential hotel employees for hours worked in excess of 40 hours and for residential hotel employees for hours worked in excess of 44 hours. 
  • The Proposed Order reiterates the narrow scope of permissible wage deductions under New York law. Specifically, the Proposed Order explains that deductions for spoilage, breakage, walkouts, cash shortages, as well as fines for lateness and other misconduct are prohibited.  The Proposed Order also restates that if the amount cannot be deducted lawfully from an employee’s pay, repayment cannot be mandated by separate transaction.  The Proposed Order appears to permit direct payment for the costs of optional meals purchased from the employer.

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This is only a summary of some of the major legal and practical issues raised by the Proposed Wage Order. The proposed Order addresses many others.  Jackson Lewis will be submitting comments to the DOL on behalf of our clients and also will hold educational sessions for clients and friends of the Firm.  In the meantime, all New York State hospitality industry employers must begin preparing for these significant changes.  If you have any questions, please contact the Jackson Lewis attorney with whom you regularly work or those whose names accompany this article.

©2010 Jackson Lewis P.C. This material is provided for informational purposes only. It is not intended to constitute legal advice nor does it create a client-lawyer relationship between Jackson Lewis and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material. This material may be considered attorney advertising in some jurisdictions. Prior results do not guarantee a similar outcome.

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