New York State Tip Laws: Wages, Tip Credits, and Pooling

New York State tip laws, set by Labor Law § 196-d and the Hospitality Industry Wage Order (12 NYCRR Part 146), let employers pay tipped workers a reduced cash wage and count tips toward the minimum wage, but they forbid any employer, manager, or corporate officer from keeping a cent of what customers leave for staff. The rules set different cash wages depending on your region and whether you serve food and drinks or work in another tipped role, control who can share in a tip pool, and treat most mandatory service charges as tips that belong to the workers. If your tips in a given pay period don’t bring you up to the full minimum wage, your employer owes the difference.

2026 Cash Wages and Tip Credits

The full minimum wage as of January 1, 2026 is $17.00 per hour in New York City, Long Island, and Westchester, and $16.00 per hour in the rest of the state. Tipped workers fall into two categories. A food service worker serves food or drinks and regularly receives tips. A service employee is a tipped hospitality worker who doesn’t directly serve food or beverages, like a hotel bellhop, coat check attendant, or resort nail technician. Food service workers carry a larger tip credit, which means a lower cash wage.

Food service workers in NYC, Long Island, and Westchester: $11.35 cash wage, $5.65 tip credit.
Food service workers in the rest of the state: $10.70 cash wage, $5.30 tip credit.
Service employees in NYC, Long Island, and Westchester: $14.15 cash wage, $2.85 tip credit.
Service employees in the rest of the state: $13.30 cash wage, $2.70 tip credit.

Fast food employees get no tip credit at all; they must be paid the full minimum wage in cash.¹ For every other tipped job, if your actual tips during the pay period don’t lift your total compensation to the full minimum wage, your employer has to make up the shortfall out of pocket.²

What the Tip Credit Lets an Employer Do, and What It Doesn’t

The tip credit is bookkeeping, not ownership. Your employer pays the reduced cash wage and counts the tips you actually earn toward the full minimum. Every dollar of credit has to be backed by real tips you received that pay period. A slow Tuesday lunch where almost no one tips doesn’t let the employer off the hook; the cash wage goes up for those hours until you reach the full minimum.²

Labor Law § 196-d makes it illegal for any employer, officer, agent, or other person to demand, accept, or retain any part of an employee’s tips or any charge that customers would understand as a tip.³ This applies across all private-sector industries, not just restaurants and hotels. A violation can produce liquidated damages equal to 100 percent of the unpaid wages, meaning the employer pays double. Willful violations of certain wage provisions push that to 300 percent, plus attorney’s fees and prejudgment interest.⁴

Tip Pooling and Tip Sharing

New York allows two ways to redistribute tips. Tip sharing is voluntary: a directly tipped worker passes a portion to a coworker who helped. Tip pooling is a common fund that gets divided among eligible workers, and an employer can require food service workers to participate and set the percentage each job category receives.⁵

Who qualifies turns on duties, not titles. The worker has to perform or assist in direct personal service to guests as a principal and regular part of the job. Eligible roles include wait staff, bartenders, barbacks, bussers, food runners, counter staff who serve food or drinks, service bartenders, captains providing direct table service, and hosts who greet and seat customers.⁶ Kitchen staff, dishwashers, and other back-of-house workers who don’t interact with guests are not eligible. The contribution percentages also have to stay within what’s customary and reasonable.

Section 196-d bars any employer, agent, or corporate officer from taking part in a tip pool or keeping any share of pooled tips.³ That reaches managers and supervisors who act as the employer’s agent. If ineligible staff are forced into a mandatory pool, the entire tip credit for every participant can be challenged, which can force the employer to pay back the full minimum wage for every affected shift.

Service Charges and Administrative Fees

Any charge added to a customer’s bill beyond the cost of food, drinks, lodging, or specified services is legally presumed to be a tip for the workers who provided the service. The presumption covers large-party service charges, banquet fees, and anything a reasonable customer would read as a gratuity.⁷ If the charge falls under that presumption, the full amount goes to the service staff.

An employer that wants to keep part of such a charge for administrative costs has to rebut the presumption with specific written disclosures. The notice has to appear in the customer’s contract, on any menu listing prices, and on the bill itself, in plain language stating that the charge is for administration of the event, is not a tip, and will not go to the employees who provided service. The text must be in a font comparable to the surrounding text and no smaller than 12-point type.⁸ If the charge is partly administrative and partly a gratuity, each portion has to be broken out as a specific percentage and disclosed under the same standards.

The Court of Appeals confirmed this framework, applying a “reasonable customer” test: if a reasonable patron would understand a mandatory charge as a tip, the employer cannot retain it without meeting the disclosure rules.⁹

Deductions and Credit Card Tips

Labor Law § 193 limits what can come out of your wages. The Department of Labor specifically lists breakage, cash register shortages, and losses to the business as illegal deductions.¹⁰ A walked tab, a broken glass, a shortage in the drawer: those are the employer’s business risk, not yours.

Credit card processing fees work differently. Under 12 NYCRR § 146-2.20, when a customer tips on a credit card, the employer must return the full tip minus the employee’s pro-rated share of the card company’s service charge.¹¹ So if the processor takes 3 percent and a customer leaves a $20 card tip, the employer can withhold roughly 60 cents. Nothing more than the actual pro-rated processing cost.

Illegal deductions trigger the same § 198 remedies: full recovery of the underpayment, 100 percent liquidated damages, attorney’s fees, and prejudgment interest, unless the employer proves a good-faith belief the deduction was lawful.⁴

Spread of Hours Pay

If your workday spans more than 10 hours from first clock-in to last clock-out, you’re owed one additional hour at the full basic minimum wage, regardless of your actual rate. The spread includes breaks and gaps. A split shift from 11 a.m. to 3 p.m. and 5 p.m. to 11 p.m. is 8 hours of work but a 12-hour spread, which triggers the extra hour.¹² The extra hour can’t be offset by meal or lodging credits and doesn’t count as hours worked for overtime. It applies to all employees in restaurants and year-round hotels, even those paid well above the minimum, and it is one of the most frequently missed items on a tipped worker’s paycheck.

Overtime for Tipped Workers

Overtime kicks in after 40 hours in a workweek at one and a half times the full minimum wage, minus the applicable tip credit.¹ The tip credit itself doesn’t grow during overtime hours; it stays the same.

Worked out for a 2026 food service worker in New York City: the full minimum is $17.00, time-and-a-half is $25.50, subtract the $5.65 tip credit, and the employer’s cash wage for each overtime hour has to be at least $19.85. Your tips during those hours still need to carry your total compensation to $25.50. If they don’t, the employer covers the gap.

Notice and Records Your Employer Owes You

Before an employer can take a tip credit, every new hire must get a written notice listing the regular hourly rate, overtime rate, exact tip credit amount, and regular payday. The notice has to be in English and in your primary language if the Department of Labor has published a template in that language. You sign an acknowledgment, and the employer keeps that signed notice for six years.¹³

Employers also have to keep daily records of the tips each worker receives and make them available for inspection by the worker and the Department of Labor.² Federal law doesn’t require any particular format, so paper logs, spreadsheets, or digital timekeeping all work as long as the records are complete and accurate.¹⁴ Missing records are usually the first thing investigators look at, and gaps make a tip credit very hard to defend.

Reporting Tips to the IRS

Tips are taxable income. If you earn $20 or more in tips in a calendar month from a single employer, you must report the total to that employer in writing by the 10th of the following month. Include cash, check, and credit or debit card tips you received and kept. If you participate in a tip pool, report only what you keep after the split. Noncash tips like tickets or gift cards don’t go in the report to your employer, but you still owe income tax on their value when you file your annual return.¹⁵

Your employer uses those reports to withhold federal income tax, Social Security, and Medicare. Underreporting creates a tax problem at filing time and can also cut into your Social Security benefits and the documented income you might need for a loan or credit application.

Filing a Wage Complaint

If your employer is pocketing tips, taking illegal deductions, or paying the wrong cash wage, you can file a complaint with the New York State Department of Labor’s Division of Labor Standards. Start with the Labor Standards Complaint Form (LS 223), which you can mail in or submit through the unpaid wages portal.¹⁶ You don’t need a lawyer, and the Department investigates at no cost. Hold on to pay stubs, schedules, and any personal record of your tips. When the employer’s own documentation is thin, your records are often what decides the case.

1
New York State Department of Labor. Minimum Wage for Tipped Workers
2
New York State Department of Labor. Tips and Gratuities Frequently Asked Questions
3
New York State Senate. New York Labor Code LAB 196-D – Gratuities
4
New York State Senate. New York Labor Code LAB 198 – Penalties
5
Legal Information Institute. 12 NYCRR 146-2.16 – Tip Pooling
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Legal Information Institute. 12 NYCRR 146-2.14 – Tip Sharing and Tip Pooling
7
New York Codes, Rules and Regulations. 12 CRR-NY 146-2.18 – Charge Purported to Be a Gratuity or Tip
8
New York State Department of Labor. 12 NYCRR Part 146 – Hospitality Industry Wage Order – Section 146-2.19
9
Justia Law. Samiento v World Yacht Inc
10
New York State Department of Labor. Illegal Deductions
11
Legal Information Institute. 12 NYCRR 146-2.20 – Tips Charged on Credit Cards
12
New York State Department of Labor. 12 NYCRR Part 146 – Hospitality Industry Wage Order – Section 146-1.6
13
Legal Information Institute. 12 NYCRR 146-2.2 – Written Notice of Pay Rates, Tip Credit and Pay Day
14
U.S. Department of Labor. Fact Sheet 21 – Recordkeeping Requirements Under the Fair Labor Standards Act
15
Internal Revenue Service. IRS Publication 531 – Reporting Tip Income
16
New York State Department of Labor. The Labor Standards Complaint Process