Danny Meyer, the owner of Union Square Hospitality Group in New York City, has 12 restaurants across Manhattan and a total of 1,800 employees. According to ABC News, he will soon start to prohibit tipping and all service employees will receive wages instead, beginning in November with his restaurant, The Modern. He plans to phase all of his restaurants into a no-tipping system by the end of the year and will raise menu prices to compensate for the change.
In a recent article, The Washington Post, mentions several restaurants that no longer permit tipping, including Dirt Candy in New York’s East Village and Riki Restaurant near Grand Central Station. The owner-chef of Dirt Candy adds a 20 percent administrative fee to the bill. She decided not to raise menu prices and calls it an “administrative fee” for legal reasons.
The tipping issue has two important considerations. The first is the business issue – what, if any, effect will such a decision have upon the business? Customers may react unfavorably because a specific, long-standing right of tipping their servers has been taken away by management.
New York restaurants that wish to adopt the no tipping policy and raise prices will be required to pay service staff the minimum wage of $8.75 ($9.00 at end of year) per hour and $13.13 ($13.50 at end of year) per hour for all hours over forty per week. The tip credit regulations which are set forth in the NYS Hospitality Industry Wage Order would not apply to a restaurant that eliminates tipping.
But the real question is how will the restaurants handle the expected tip pool with the staff? Servers and bussers have earned far more than $8.75 per hour, when including their tips. In some restaurants, they can earn $500 to $1,000 per week from tips, depending on the reputation of the restaurant. What will owners like Meyer do with the staff given this amount of tips that was earned? Obviously, servers will not settle for minimum wage alone as their compensation.
If restaurants attempt to pay “salary” to service workers, they run the risk of additional lawsuits or government investigations for the misclassification of such employees. Servers are not overtime exempt employees and, regardless of the authority the owner may want to grant such an employee, they must be paid hourly since they will always remain employees without legal management authority as defined by the law.
In the event you are unclear on either how to pay or what records must be kept, you should feel free to call our firm, Stephen D. Hans & Associates, P.C. at (718) 275-6700 to discuss this issue and general compliance with all federal and state labor laws on payroll and wages.