Please note: We are not a legal firm and do not provide legal advice. This article is for informational purposes only. Consult with a qualified attorney before implementing any practices discussed herein.
New York's robust hospitality industry employs hundreds of thousands of workers, and their wages total as much as $10 billion in New York City alone.
Given this high volume of wages and source of employment, the state has specific policies on paying workers, especially tipped employees. Wage violations can lead to serious repercussions, making it essential for employers to understand and adhere to these policies. New York Restaurant Management Systems are designed to help streamline operations and ensure compliance with these wage laws.
So, how is tipping in New York unique?
The Fair Labor and Standards Act establishes a federal minimum wage of $7.25 but offers a caveat for paying tipped employees. The act defines tipped employees as workers who regularly receive more than $30 monthly in tips. Employers can use what's known as a tip credit for these workers' wages.
A tip credit allows employers to pay a lower cash wage with the expectation that the employee will earn enough in tips to reach minimum wage. The sum of the cash wage and the tip credit must equal the minimum wage.
New York State Labor laws have some nuances across geography and the type of worker. As of January 1, 2026, New York State's minimum wage is $16.00 per hour. New York City, Long Island, and Westchester County's minimum wage is $17.00 per hour. Only hospitality workers can take tip credits, but the rates differ between food service workers and other tipped service workers (e.g., instructors, hairdressers, door attendants, etc.).
In New York City, Long Island, and Westchester County, hospitality employers can take a $2.85 tip credit with a $14.15 cash wage for food service workers. For other tipped service workers, the tip credit is $5.65 with an $11.35 cash wage.
The rest of New York State has a minimum wage of $15.50 with a $2.70 tip credit and a $13.30 cash wage for food service workers. For other tipped service workers, the tip credit is $5.30 with a $10.70 cash wage.
These rates do not apply to workers in fast food establishments (e.g., chains, limited service, and other defined locations).
The hospitality industry has a few limitations on tip credits as well. If a tipped worker spends more than 20% of their shift on non-tipped work, then the employer may not take tip credits for that day. They place additional restrictions on weeks when workers average tips below a certain amount.
It's important to note that using a tip credit requires adherence to several labor regulations. Technology solutions, particularly tipping software, are a great way to ensure your compliance.
Consulting state resources, including their Minimum Wage Lookup Tool, is also essential. Certain communications are also mandated. It is your responsibility to notify workers of the cash wage, tip credit amount, and if there is a tip pooling policy.
Mandatory Notice of Pay Rate: Remember that New York law requires employers to provide a written Notice of Pay Rate to every employee whenever their pay changes. With the 2026 increases to the cash wage and tip credit, all hospitality businesses in New York must issue new notices to their staff immediately to remain compliant.
TipHaus Tip: Track your tipped employees' duties carefully to ensure compliance with tip credit rules. If a worker spends over 20% of their time on non-tipped tasks, consider scheduling adjustments or shifting those responsibilities to non-tipped staff. This way, you avoid compliance issues, protect your tip credit, and keep labor costs manageable. Using software to monitor task time allocations can make this process smoother and more accurate.
When it comes to tip pooling laws in New York, the state leaves the decision up to the owners. Both tip pooling and sharing are legal and offer respective pros and cons.
Tip pooling consists of employees sharing their collected tips into a larger pool, which is then divided among all team members. Usually, each employee's portion is determined by their overall hours.
Pooling can promote a culture of teamwork and collaboration and can make payroll easier, but it doesn't favor top earners.
Tip sharing consists of employees sharing a portion of tips received with support staff (e.g., barbacks, bussers, hosts, etc.). This practice allows flexibility but adds a challenge in calculating sharing portions.
Can owners take tips in these scenarios? No. Owners cannot participate in pooling or sharing. Members of the program must either be tipped employees or direct support staff. New York labor laws also require owners to clearly define their systems to be compliant with the law.
The best solution will depend on your staff and your business. Ultimately, you must develop a system for maintaining records. This can be made much simpler with the right technology solution, such as tipping software.
Restaurants and other venues occasionally apply what's known as a mandatory service charge to checks.
It's an added event or administrative charge (e.g., larger parties, banquets, special events, etc.) imposed at the discretion of the owner. It's important to note this is not a tip and doesn't necessarily go to a tipped employee at all. Again, that is at the discretion of the owner. However, the owner must inform customers of how these proceeds are distributed.
Since the mandatory service charge is not a tip, it cannot be subjected to a tip credit when paid out to a tipped worker. It must be treated as normal wages.
New York takes service charge compliance very seriously. It offers a checklist for inspection and has a specific 311 line for consumer reports. TipHaus integrates with all major POS systems, making service charge management and reporting seamless.
The IRS has officially updated Form W-2, which affects every employer with tipped employees nationwide. These updates are a direct result of the One Big Beautiful Bill Act (OBBBA), which introduces new tax incentives for service industry workers but requires more granular reporting from hospitality businesses.
To ensure your employees can claim their new federal tax deductions, including the first $25,000 of qualified tips, your payroll reporting must now include specific new codes. If these codes are missing, your employees will likely be unable to claim the federal tax deduction on their first $25,000 of tips.
Box 12, Code TP: Total amount of cash tips reported to the employer. “Cash tips” includes tips received in cash, charged, or under a tip-sharing arrangement.
Box 12, Code TT: The total amount of qualified overtime compensation paid to the employee.
Box 12, Code TA: Employer contributions made to an employee's section 128 "Trump Account."
Box 14b: Treasury Tipped Occupation Code, provides a three-digit code and descriptions for the occupations listed within the proposed regulations. The proposed regulations group the occupations into eight categories:
New York is one of a few states that allows employers to deduct credit card processing fees from employee tips. Employers can deduct a pro-rated amount from tips received. As of January 2025, employers were required to provide employees with detailed monthly statements outlining all deductions from tips received, including credit card fees. They must pay the employee by the next scheduled payday and communicate a breakdown of tips and wages.
Some restaurants rely on cashing out after shifts. However, digital payouts via tipping software or other technology solutions can streamline the breakdown of fees to ensure compliance. For employees, especially in a city like New York, immediate access to their earned tips can be a game-changer for their personal finances. This financial flexibility can aid in budgeting, cover unexpected expenses, and even help in building credit or verifying income for significant life events like renting an apartment.
Hear directly from Mason, a bartender at The Grey Dog in Chelsea, New York. Mason has been using HausMoney for over three years, and in this quick testimonial, he shares how daily tip payouts after every shift have changed the game, from knowing exactly how much he’s earning to building his credit, and even using HausMoney to verify income when moving into his new apartment.
Labor costs and employee retention remain challenges for the hospitality industry. This is one reason why protecting tipped workers is a necessary practice.
In addition to the legal protections for tipping in New York, proper tip handling can improve employee morale. It's crucial to stay up to date on New York legislation via their government websites, but even more crucial to have efficient systems in place.
Clear communication with employees, adherence to state laws, and timely payout of collected tips are essential. Using digital payouts and tipping software is an easy way to streamline this for your business. With the TipHaus Employee app, team members can see a clear, real-time breakdown of their tip earnings. This transparency helps employees understand exactly how their effort translates to pay, boosting trust and engagement.
Start your free trial with TipHaus and see how the right platform can take the complexities out of tipping in New York.
