Scarinci Hollenbeck, LLC, LLCScarinci Hollenbeck, LLC, LLC

Firm Insights

No Tip? No Problem: NYC Restaurants Adopt New Business Model

Author: Scarinci Hollenbeck, LLC

Date: October 29, 2015

Key Contacts

Back

Although tipping has long been the norm for the U.S. restaurant industry, famed restaurateur Danny Meyer recently announced that all of the NYC Restaurants in the Union Square Hospitality Group will eliminate tipping by the end of the year.

The policy change will impact 11 notable NYC restaurants, including the Gramercy Tavern, The Modern, and Union Square Café, as well as the 1,800 tipped employees that work in such establishments.

Although tipping has long been the norm for the U.S. restaurant industry, famed restaurateur Danny Meyer recently announced that all of the NYC Restaurants in the Union Square Hospitality Group will eliminate tipping by the end of the year.

Although there are a number of factors driving this no-tipping business decision, New York’s end-of-the-year tipped employee minimum wage hike from $5 to $7.50 is undoubtedly a major factor. Although many servers at high-end NYC restaurants earn substantial money as tips, little of this will count towards the employer’s responsibility to compensate, even though the tip credit has been an ingrained element of restaurant economics. Restaurant owners also face anticipated increases in the minimum wage for fast-food workers up to $15 an hour, which may tempt kitchen staff to seek higher paid positions at those establishments.

For restaurant owners, eliminating tipping arguably offers a number of advantages. For one thing, it makes employment law compliance and record keeping much less complex. Rather than navigating a dizzying maze of local, state and federal wage regulations applicable to tipped employees, members of the wait staff would be treated like all other non-exempt, hourly workers.

Mr. Meyers further explained that, by raising menu charges for food and beverage to include a service component, the employer is able to reallocate total revenue to narrow the earnings gap between those who make the food and those who serve it. Under the Fair Labor Standards Act, gratuities paid to servers cannot be shared with non-tipped employees, such as kitchen staff. “The gap between what the kitchen and dining room workers make has grown by leaps and bounds,” Meyer told the . During his 30-year career in the NYC restaurant industry, “kitchen income has gone up no more than 25 percent. Meanwhile, dining room pay has gone up 200 percent,” he added.

For wait staff, the response is largely mixed. Some would prefer to earn a predictable wage, which eliminates the fear that a slow night can result in a low paycheck. However, other servers are wary that no-tipping policies will eliminate the “upside” income opportunity that comes with big tips for good service.

There are different variations of a no-tipping policy. For instance, Dirt Candy, which is located on the Lower East Side of Manhattan, adds an “administrative fee” of 20 percent to each check. Under the law, if proper legal notice is provided, this is not a “tip” which is defined to be a “voluntary payment made by the patron to the server.” Whatever the name, an imposed service charge is a tip and can be credited to meet the employer’s minimum wage obligations (some jurisdictions will not permit a reallocation of the service charge to pay other employees however). Dirt Candy’s fee helps cover the $15/per hour the restaurant pays its waiters, waitresses, and bar staff. Other eateries are experimenting with raising food prices and imposing other types of services charges.

In the end, Mr. Meyer’s bold move will certainly warrant close attention by the restaurant industry, both inside and outside of the New York City metropolitan area. A crucial factor for success will be whether customers are willing to pay higher prices in exchange for eliminating the need to tip. NYC Restaurants would face potentially higher withholding tax obligations and would no longer be eligible to claim the favorable FICA tip credit. It also remains to be seen whether employees will be willing to work at an establishment which offers higher hourly rates that does not match the potential upside offered by tips.

To discuss how a no-tipping policy may impact your labor compliance obligations and costs please contact attorney Gary S. Young

Related Articles:

Wage-Violations Lawsuits By Restaurant Workers Featured By NJHRA

Wage Employees Sue Restaurant In Wage Disputes

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Scarinci Hollenbeck, LLC, LLC

Related Posts

See all
Rule 26 Expert Discovery: When an Expert Witness Uses AI, Is It Discoverable? post image

Rule 26 Expert Discovery: When an Expert Witness Uses AI, Is It Discoverable?

Case law following the 2010 amendments to Federal Rule of Civil Procedure 26 offers guidance on how courts are likely to address whether an expert witness’s AI records are subject to discovery. Key Takeaways Rule 26 Expert Discovery After the 2010 Amendments This article addresses the question courts and lawyers have faced in recent cases: […]

Author: Chris Seelinger

Link to post with title - "Rule 26 Expert Discovery: When an Expert Witness Uses AI, Is It Discoverable?"
How Expert Witness AI Use Ends Up in Discovery post image

How Expert Witness AI Use Ends Up in Discovery

“Show how 3M is 0% at fault.” The absurd tale of how a 350-page ChatGPT history for 3M’s expert witness was produced during a deposition is more likely than you think. It’s an inevitable trend, and an unsettled question for federal courts as experts make generative AI part of their workflow. Key Takeaways Expert Witness […]

Author: Chris Seelinger

Link to post with title - "How Expert Witness AI Use Ends Up in Discovery"
The Screenshot Problem: Why Nothing Is Really Private Anymore post image

The Screenshot Problem: Why Nothing Is Really Private Anymore

Screenshots have changed the risks of electronic communications. The screenshot problem is that messages intended for one person or a small group can be copied, forwarded, preserved, and ultimately presented to opposing counsel, regulators, journalists, customers, or a jury. Businesses should recognize that a truly private digital conversation is increasingly unreliable and ensure their policies, […]

Author: Sean M. Pena

Link to post with title - "The Screenshot Problem: Why Nothing Is Really Private Anymore"
BESS Project Agreements: Allocating Risk Among Developers, EPC Contractors, and Equipment Suppliers post image

BESS Project Agreements: Allocating Risk Among Developers, EPC Contractors, and Equipment Suppliers

Developers, engineering, procurement, and construction (EPC) contractors, and equipment suppliers each play a critical role in completing a BESS project. However, when equipment costs rise, deliveries are delayed, or regulations change, determining who bears the financial consequences can become contentious. Well-drafted project agreements are essential to sound risk allocation. Key Takeaways This article is Part […]

Author: Nicholas Wall

Link to post with title - "BESS Project Agreements: Allocating Risk Among Developers, EPC Contractors, and Equipment Suppliers"
IP Infringement: What Steps Can You Take If You're Affected? post image

IP Infringement: What Steps Can You Take If You're Affected?

IP infringement occurs when someone uses your intellectual property without your permission or beyond the scope of the permission you granted. Common examples of IP infringement include copying a product’s patented features or using a trademarked logo in a way that is likely to confuse consumers about the source or affiliation of goods or services. […]

Author: Michael Mietlicki

Link to post with title - "IP Infringement: What Steps Can You Take If You're Affected?"
Public Allegations, Unfinished Investigation: What New Jersey Businesses Should Do Next post image

Public Allegations, Unfinished Investigation: What New Jersey Businesses Should Do Next

When facing public allegations of wrongdoing, companies should not let the speed of the public conversation dictate the speed of an investigation. An investigation designed to confirm a preferred narrative rather than establish the facts can create serious problems later, particularly if litigation, regulatory scrutiny, or employment claims follow. Key Takeaways When public allegations surface […]

Author: Sean M. Pena

Link to post with title - "Public Allegations, Unfinished Investigation: What New Jersey Businesses Should Do Next"

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Sign up to get the latest from our attorneys!

Explore What Matters Most to You.

Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.

Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.

Let`s get in touch!

* The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form. By providing a telephone number and submitting this form you are consenting to be contacted by SMS text message. Message & data rates may apply. Message frequency may vary. You can reply STOP to opt-out of further messaging.
“If you would like to submit a file, please email it directly to info@sh-law.com.

Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!