New Hospitality Industry Wage Order Mandates Significant Changes for New York State Employers
National Trend to Tighten Payroll Practices Is Underway
New York state has adopted a new Hospitality Industry Wage Order. The new wage order, which takes effect on January 1, 2011, replaces the prior, separate wage orders for the restaurant and hotel industries. While the new Hospitality Industry Wage Order provides greater clarity and uniformity for certain pay practices, it also imposes additional requirements in New York that may increase labor costs. Accordingly, hospitality industry employers in New York state – even those operating under an existing collective bargaining agreement – must review their pay practices to ensure compliance with the new regulations.
This wage order is representative of a national trend to tighten payroll practices in the hospitality and restaurant industry. The more significant changes of the New York Hospitality Industry Wage Order are stated below.
Hourly Wage Rates Required
The Hospitality Industry Wage Order expressly requires hourly rates of pay for all non-exempt employees, except for commissioned salespersons, and disallows a daily, weekly, salary, piece rate or other non-hourly rate. Combined with a March 2009 opinion letter from the New York State Department of Labor, the new wage order raises a question as to whether hospitality industry employers may continue the common practices of paying high-wage banquet servers straight-time pay for hours worked in excess of 40 hours each week if their employer-paid gratuities exceed 50 percent of their total compensation, as is permitted by federal law under Section 7(i) of the Fair Labor Standards Act (FLSA).
The Minimum Rate and Pay Policies
The Hospitality Industry Wage Order alters the calculation of the $7.25 minimum wage rates for service and food- service workers by, in most cases, increasing the minimum cash wage and decreasing the amount of the permissible tip credit. Contrary to the previous wage orders, additional pay due employees – such as call-in pay, spread-of-hours pay and uniform maintenance pay – will be added to wages at any pay scale and previous setoffs have been eliminated. Now, providing clarity for employers, both the call-in pay and spread-of-hours regulations explicitly state that these payments need not be included in the regular rate for the purposes of calculating overtime pay. Similar to the recent changes to the New York Labor Law, employers are required to give each new employee written notice of the employee’s regular payday, regular hourly rate, overtime hourly rate, and the tip credit, if any, to be taken from the basic minimum hourly rate. The required notice must also state that extra pay is required if tips are insufficient to bring the employee up to the basic minimum hourly rate.
Tip Pooling and Sharing
The Hospitality Industry Wage Order drastically changes the treatment of “tip sharing” and “tip pooling.” Previously, mandatory tip pooling was prohibited in New York, but now both mandatory tip pooling and tip sharing are allowed. However, there are extensive recordkeeping requirements for tip-pooling or tip-sharing systems regarding how the tips are collected and distributed; all employees must be given access to these records.
Pursuant to the Hospitality Industry Wage Order, employees eligible to receive shared tips or distributions from a tip pool must perform, or assist in performing personal service to patrons as a principal and regular part of their duties – not merely occasionally or incidentally. Employees eligible to receive shared tips or tips from a tip pool include, but are not limited to wait staff, counter personnel who serve food to customers, bus persons, bartenders, service bartenders, barbacks, food runners, captains who provide direct food service to customers, and hosts who greet and seat guests. Eligibility is always based on the employee’s duties, not the employee’s title. Hospitality employers may not require directly tipped employees to contribute a greater share of their tips to indirectly tipped employees (through tip sharing or tip pooling) than is customary and reasonable .
Gratuities and Service Charges
The new wage order explicitly requires hospitality employers to distribute to employees the full amount of any house-imposed charges on guest bills that are “purported to be a gratuity.” If a gratuity is paid by credit card, however, employers are now allowed to deduct from their payment to employees a pro rata share of the charge imposed by the credit card company for processing the gratuity. Consistent with the 2008 decision of the New York State Court of Appeals in Samiento v. World Yacht, the new wage order imposes a “reasonable customer” standard in determining whether a charge is purported to be a gratuity. The wage order asserts that there is a rebuttable presumption that any charge in addition to charges for food, beverage, lodging and other related services provided to guests is a gratuity.
With regard to banquets, special functions and package deals, hospitality employers may charge their customers administrative charges, overhead fees, operations charges or similar fees, but such charges must be clearly identified, and customers must be notified in writing that the charge is not a gratuity and will not be distributed as a gratuity to employees who provided service to the guests. The notification must be contained in a contract, agreement, or bill and on any menu and bill listing prices. This notification must be easy to understand and in at least a 12 point font. According to the wage order, when imposing service charges, employers have the burden of demonstrating by “clear and convincing evidence” that a reasonable person would not have understood the charge to be a gratuity.
Uniform Maintenance Pay
Under a new “wash and wear” exemption, employers in the hospitality industry will be exempt from uniform-maintenance pay if the employer provides uniforms constructed of “wash and wear” fabrics that can be laundered routinely along with personal garments and if the number of uniforms provided are consistent with the average number of days per week worked by the employee. For the “wash and wear” exemption to apply, the uniforms must not require ironing, dry cleaning, daily washing, commercial laundering or other special treatment. Another exemption relieves employers of the obligation to pay uniform allowances where the employee refuses to use the employer-provided laundry service and the employer itself launders the uniforms, ensures an adequate supply of clean, properly-fitted uniforms, and informs the employees in writing of the cleaning service. If an employee is required to purchase a uniform, the employer must reimburse him or her by the next payday. Uniform maintenance pay otherwise applies to all employees and is not subject to any offset.
Meals and Lodging Allowances
Effective January 1, 2011, the meal allowance will be increased to $2.50 per meal for all workers. In addition, whenever an employee’s shift is long enough to require a meal break, employers will have to either provide employees a meal (at a cost no greater than the meal credit amount in the wage order) or allow employees to bring their own food and consume it on premises.
National Trend a Reality in New York
As noted initially, this alert covers only the major changes to pay requirements and other employer obligations in the New York hospitality industry. We can provide additional information concerning this new Hospitality Industry Wage Order, or the changes not covered in this alert.