State law prohibits dipping into employees’ tip pool

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in Compensation and Benefits,Human Resources

New York employers in the restaurant industry need to be vigilant. The state’s minimum wage law places tight restrictions on how you divvy up money collected in a tip pool, and it applies whether or not you take a tip credit toward meeting your minimum wage obligation.

If your employees pool their tips, you must follow the New York Tip Appropriation Law. It prohibits employers from “demanding or accepting, directly or indirectly, any part of the gratuities” employees earn. The only exception: tips shared by wait staff and bus persons, hosts or greeters.

What’s more, managers may be personally liable for ensuring that tips go to the right employees.

Recent case: Heng Chan and 10 other waiters, bus persons and captains sued 88 Palace Restaurant, alleging it owed them unpaid tip money.

The New York City restaurant had paid them less than the state and federal minimum wage because they earned tips to make up the difference.

At the heart of the case was the restaurant’s practice of assessing banquet customers a service fee of 15 percent, of which the restaurant took 25 percent as a “fee” for itself. The restaurant then paid half of the wages of the part-time waiters who worked the party, even though they earned a set hourly wage, and put the rest in the general tip pool for the full-time waiters who also worked the event.

Result: The fee kept by the restaurant and the money deducted to help pay for the part-timers were ruled illegal deductions under the state’s Tip Appropriation Law. (Chan v. 88 Palace Restaurant, No. 03-CIV-6048, SD NY, 2007)  

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