New York allows restaurant employers to pay tipped food service workers a cash wage of $11.35 per hour instead of the full $17.00 minimum wage. The remaining $5.65 is called the “tip credit,” meaning the employer assumes that tips will cover that gap. If they don’t, the employer must pay the difference so the employee still earns at least $17.00 per hour for every hour worked. These rates apply in NYC, Long Island, and Westchester County. Upstate New York has different rates.

There are actually two tipped wage categories, and the distinction matters. Food service workers like servers and bartenders fall under the $11.35 cash wage with a $5.65 tip credit. Other tipped service employees (think coat check or parking attendants) get a higher cash wage of $14.15 with a smaller $2.85 tip credit. Applying the wrong category to an employee results in underpayment, which is a wage violation even if it was an honest mistake.

The tip credit is not something you automatically get to take. To use it, you need to notify employees in writing about the tip credit arrangement before it takes effect. The employee must regularly receive more than $30 per month in tips. And you need to be able to show that tips actually brought each worker’s total compensation to at least $17.00 per hour in every pay period.

Your payroll system needs to track reported tips for each tipped employee on every shift. When you run payroll, the system should calculate whether the cash wages plus reported tips meet the $17.00 threshold. If an employee had a slow week and tips fell short, you owe them the difference. This “tip shortfall” payment shows up as additional wages on their paycheck. Getting your restaurant payroll system configured to handle these calculations from day one prevents errors that compound every pay period.

All tips are taxable income, whether they come from cash or credit cards. Employees must report their tips to the employer, and the employer is responsible for withholding federal income tax, Social Security, and Medicare on those reported tips. You also pay the employer share of FICA and unemployment taxes on tip income. Unreported cash tips create serious tax exposure for both the employee and the business if the IRS comes looking.

Tip pooling is allowed in New York, but the rules about who can participate are strict. Managers and owners cannot receive any portion of a tip pool. Only employees who customarily receive tips can be included. Violating this can result in wage theft claims under New York Labor Law, and the penalties add up fast.

Record-keeping is not optional. The New York Department of Labor can audit your payroll records at any time, and the burden of proof falls on you as the employer. You need clean records of hours worked, tips reported, and any shortfall payments made. If you cannot produce this documentation, you lose the right to claim the tip credit entirely, and you would owe back wages at the full $17.00 rate for every hour worked.

If you are running a restaurant in the Bronx or anywhere in NYC and want to make sure your tipped payroll is handled correctly, our Bronx bookkeeping services can help you get set up properly and stay compliant with every pay run.