2021: What entrepreneurs & small businesses need to know about New York’s minimum wage and tip credit
If 2020 was defined by a spiny, dog toy-shaped, life-threatening virus that’s derailed every business plan of the year in favor of stockpiling toilet paper, video gaming, and longing for interpersonal connection, it’s safe to say we’re hoping for real change in 2021. However, each year New York’s scheduled minimum wage increases take effect on December 31. In the hospitality industry, tip credits toward minimum wage decrease, effective December 31. In other industries (categorized “Miscellaneous,”) employee categories for whom a tip credit was previously applicable will no longer be legitimate – resulting in a requirement to pay minimum wage to employees in those roles.
I’m here to say that you can use this as an opportunity. You’ve made it this far in your business. You know your best employees. It may be time for personnel changes. Let’s look at the changes to the law, then I’ll give you some general recommendations.
Minimum Wage Increases
Effective December 31, 2020, if you’re a private sector New York State employer, hourly minimum wage increases from $11.80 per hour to $12.50 per hour (in Long Island/West Chester the increase is from $13.00 to $14.00 per hour; in NYC the minimum remains steady at $15.00).
The minimum weekly salaries for executive and administrative exempt employees increases from $885.00 per week to $937.50 per week (in Long Island/West Chester the increase is from $975 per week to $1,050.00 per week; and in NYC the minimum remains at $1,125.00 per week). Keep in mind that receipt of these minimum salary levels is only one aspect of the test keeping executive and administrative employees exempt from earning overtime compensation.
Tip Credit – Miscellaneous Industries & Occupations (e.g. hair dressers, parking lot attendants, valets, nail salons, non-hospitality workers who often receive tips)
While it wasn’t heavily publicized, over the summer, effective June 30, 2020, employers subject to the Wage Order for Miscellaneous Industries and Occupation were required to reduce the applied tip credit by 50%.
Effective December 31, 2020, these employers may not apply a tip credit towards minimum wage for employees who regularly receive tips. Accordingly, it’s essential that employers in these industries begin paying the geographically appropriate minimum wage based on where the employee works.
Hospitality Industry Tip Credit Changes
Elimination of the tip credit does not affect restaurants and hotels covered by the Hospitality Industry Wage Order. These businesses may still apply a tip credit, but the amount changes as of December 31, 2020:
Non-food service workers (delivery staff, bathroom attendants, etc.), have a new permissible tip credit (except for resort hotels) of the following:
| Location | Tip Credit Per Hour | Minimum Average Tip Earnings Per Hour (Eligibility Tip Credit) | Direct Cash Wage Per Hour | Minimum Total Compensation Per Hour |
| New York (except NYC, Long Island & Westchester) | $2.10 | $2.70 | $10.40 | $12.50 |
| Long Island & Westchester | $2.35 | $3.05 | $11.65 | $14.00 |
In New York City, the allowable tip credit for such service workers remains at $2.50 per hour, with a minimum direct cash wage of $12.50 per hour. To be eligible for a tip credit, such workers must average at least $3.25 in tip earnings per hour.
Resort hotels, new minimum wages and tip credit for non-food service workers are as follows:
| Location | Tip Credit Per Hour
— | Minimum Average Tip Earnings Per Hour (Eligibility Tip Credit) | Direct Cash Wage Per Hour | Minimum Total Compensation Per Hour |
| New York (except NYC, Long Island & Westchester) | $2.10 | $7.00 | $10.40 | $12.50 |
| Long Island & Westchester | $2.35 | $7.85 | $11.65 | $14.00 |
In the case of resort hotels in NYC, the allowable tip credit for non-food service workers remains $2.50 per hour. For the credit to apply, such workers must average $8.40 per hour in tips. The worker must receive a cash wage of at least $12.50 per hour, for total minimum compensation of $15.00.
Food service workers (e.g. waiters, bartenders, bussers and runners) will also change on December 31, 2020 for most of the state as follows:
| Location | Tip Credit Per Hour— | Direct Cash Wage Per Hour | Minimum Total Compensation Per Hour |
| New York State (except NYC, Long Island & Westchester) | $4.15 | $8.35 | $12.50 |
| Long Island & Westchester | $4.65 | $9.35 | $14.00 |
In NYC, there are no changes: The allowable tip credit per hour remains $5.00 and the minimum cash wage is $10.00 per hour, for a total minimum wage of $15.00 per hour.
Recommendations
If this is the first you’re hearing of these changes, better now than never. New York employers should address the payroll changes first, if applicable. The minimum wage and minimum salary increases take effect December 31. Remember to give employees the required written notice of changes to compensation at least seven days prior, under the Wage Theft Prevention Act.
Employers in the Miscellaneous industry category, as specified above, who have previously relied on the tip credit should have started phasing it out back in June and are required to eliminate it by December 31.
The hospitality industry is facing greatest potential change, if caught unawares, with both increased minimum wage and tip credit taking effect on December 31. 2020.
If you have concerns about the potential strain on your business, this could be an opportunity to look for efficiencies and make an honest appraisal of your workforce. Everyone is struggling to make ends meet. You likely don’t mind paying extra to your employees who show up willing to do extra. If you have employees you’d rather not invest-in at these new levels, it may be time to consider why that’s the case.
Taking appropriate corrective action within your workplace policies and within the law can be difficult to navigate, reach out to counsel you trust or your HR advisor to assist.
This article and its contents are intended as a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
