While most people will not be sad to leave 2020 behind, employers across much of New York State will see an increase to their labor costs in 2021, even though much of the state is navigating recession-like conditions caused by the Covid-19 pandemic.  While many employers are aware of the forthcoming increase in minimum wages, many may not be aware that minimum salary levels to be exempt from overtime are also increasing. And most are probably not aware that they may no longer be able to take a tip credit towards minimum wage for many categories of employees for whom a tip credit has long been available.

Hourly Wage and Salary Increases

Effective December 31, 2020, the minimum wage will increase for all private sector employees in the state except for those who work in New York City.  Specifically, the minimum will increase from $13.00 to $14.00 per hour for employees working in Long Island and Westchester, and from $11.80 per hour to $12.50 per hour for the rest of the state except New York City, where the  minimum is already $15.00 per hour and will remain so.¹ 

Pay increases are not limited to hourly employees. Beginning December 31, 2020, the minimum salaries  for executive and administrative exemptions from overtime will also increase, as follows:²

The minimum salary threshold in New York City will remain at $1,125.00 per week.

Tip Credit Changes – Miscellaneous Industries and Occupations

Employers subject to the Wage Order for Miscellaneous Industries and Occupation face a significant but poorly publicized change. Effective June 30, 2020, these employers were required to reduce the applied tip credit by fifty percent.  Effective December 31, 2020, such employers may no longer apply a tip credit towards minimum wage for employees who regularly receive tips.  This change will affect employers of employees such as parking lot attendants, valets, hair dressers, nail salon workers, skycaps and other non-hospitality workers who often receive tips.³ Accordingly, employers of these employees must ensure that they begin paying the full minimum wage applicable in the geographic area in which the employee works.

Hospitality Industry Tip Credit Changes

The elimination of the tip credit is not applicable to all employers and will not affect employers that operate restaurants and hotels and who are covered by the Hospitality Industry Wage Order.  These businesses may still apply a tip credit towards minimum wages. The amount of the tip credit, however, changes as of December 31, 2020 as follows:

For non-food service workers, such as delivery staff or bathroom attendants, the new allowable tip credit is as follows, except for resort hotels:⁴

In New York City, the allowable tip credit for such service workers will not change this year and 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.

For resort hotels, the new minimum wages and tip credit for non-food service workers is as follows:⁵

For resort hotels in NYC, the allowable tip credit for non-food service workers remains $2.50 per hour.  For the credit to apply, such worker 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.

The tip credit applicable to food service workers such as waiters, bartenders, bussers and runners will also change on December 31, 2020 for most of the state as follows:⁶

In New York City, 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.

Conclusion and Recommendations

New York employers must act promptly to ensure compliance with the law.  Employers are advised to promptly address the payroll changes they will need to make as of December 31. In most of the state, New York employers will face minimum wage or minimum salary increases on that date.  Those New York employers that have relied upon the tip credit in the Miscellaneous Industries Wage Order should have begun phasing out the use of the tip credit earlier this year, and must eliminate it by December 31.  Hospitality industry employers may not only need to implement payroll changes to reflect the increased minimum wage and changes to the tip credit, that goes into effect on December 31, 2020, under the Wage Theft Prevention Act, they must give their employees written notice of these changes at least seven days earlier.