New York’s governor Andrew Cuomo announced that he is considering eliminating the tip credit in the state.
If you are unfamiliar with the tip credit, it allows tipped workers to make an hourly wage that is less than minimum wage as long as they collect enough tips to make up for the wage. If they don’t, their employers are required to pay the difference.
The law protects business owners and keeps labor costs down. Rents in New York City are extremely high, making an operator’s profit margin lower than other areas of the country.
So how will operating expenses increase if the tip credit is eliminated?
“For example, a restaurant in Manhattan that generates $3 million in annual sales may spend up to $300,000 in wages for tipped employees. If New York State eliminates the tip credit, it would cost this restaurant approximately $160,000 in additional wages, taxes and workers’ compensation expenses. If this business is running a solid 10% profit margin, it will be chopped in half by more than 50%. Alternately, if the restaurant runs a 5% profit margin, they will land $10,000 in the red,” writes “Forbes.”
Although the average tipped restaurant worker makes $25 an hour, you would think they would be in support of eliminating the tip credit because they would make minimum wage, along with their tips.
However, this was not the case in Maine when the tip credit was eliminated. Tipped restaurant workers rallied together to get the credit reinstated.
New York tipped workers have the same concern that restaurant employees in Maine did. With a slimmer profit margin, workers were concerned that operators would be forced to cut hours, fire employees, and increase menu prices– which could ultimately drive away employees.
Operators are already prepping for the impending increases in tip wages.
“By the end of this year, recent labor mandates for restaurants in New York City include a 100% increase in the tip wage. There will have been six consecutive annual minimum wage increases,” writes “Forbes.” “On top of that there was mandated paid time off and skyrocketing healthcare costs.”
These upcoming increases in labor cost have already had an effect on NYC’s restaurant industry.
Read more from “Forbes.”