New York Tightens Wage Rules as U.S. Mulls Easing of Regulations

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By Jon Steingart

As the Trump administration ponders how to revisit some of its predecessor’s pro-worker actions, New York seems to be moving fast in the opposite direction.

The Empire State in recent years increased the minimum wage, expanded overtime eligibility for more workers, inked a regulation requiring employers to provide more notice of workers’ schedules, and enacted a paid family leave program. Next, says Gov. Andrew Cuomo, the state will explore cutting a provision that lets employers pay tipped workers less than the standard minimum wage as long as tips make up the difference.

Meanwhile in Washington the Labor Department has put a proposal on the table to change how tips are treated under the Fair Labor Standards Act. The proposed regulation, now in the comment period, would rescind an Obama-era regulation that says tips are the property of the employee.

Critics have said the new proposal would reduce tipped employees’ income, as employers pocket gratuities. But employer advocates say they’d use the tips to boost the pay of “back-of-the-house” workers like cooks and dishwashers.

In addition to the proposed tip rule, the U.S. Labor Department under Secretary Alexander Acosta has endorsed a less ambitious standard for when employees become eligible for overtime pay.

“For many years, states have been leading the way on protecting workers and adopting the new worker protections that we need while Washington has been gridlocked,” the National Employment Law Project’s Paul Sonn told Bloomberg Law.

Cuomo’s actions have “made New York one of the states that’s really been at the forefront of fashioning protections for workers,” Sonn said. He is general counsel and program director at the New York-based worker advocacy organization.

But the minimum wage increase, combined with the potential loss of tip credits could make it difficult for restaurant businesses to survive in New York, Kevin Dugan, government affairs director with the Albany-based New York State Restaurant Association, told Bloomberg Law. Dugan said cutting the credit could hurt workers, too.

New York has taken other worker-friendly moves in recent months that differ from workplace rules on the federal level. The state labor department is accepting comments through Jan. 6 on proposed regulations that would require retail employers to finalize staff schedules a few weeks in advance so workers can arrange child care and other needs. The proposed regulations resulted from hearings Cuomo directed the department to undertake this year.

Cuomo has called for hearings to revise the state’s tip-credit rule. A hearing schedule hasn’t been announced.

Separate from the statewide actions, worker scheduling rules for retail and fast food employers in New York City took effect Nov. 26, under an ordinance the city council passed in May.

Action on State OT Rule, Minimum Wage

Overtime eligibility rules have also seen changes at the federal and state levels over the last year.

New York raised the salary threshold below which employees are automatically eligible under state law for overtime when they work more than 40 hours in a week. The increase, which varies by region and employer size, went into effect Dec. 30, 2016. It updates automatically on an annual basis.

While New York was considering the threshold increase, the U.S. DOL was preparing to set an identical threshold on the federal level effective Dec. 1, 2016. But New York jumped ahead of the federal government when a judge blocked the federal rule a few days before its start date.

Since then, Acosta has been in the midst of reviewing comments on how to craft a new regulation to update the salary threshold below which workers automatically qualify for time-and-a-half pay. Acosta, who was sworn in as Labor Secretary in April, has suggested he would raise the level from where it stands now, at $23,660, but not as high as the $47,476 figure the Obama administration sought. A possible boost for worker advocates: Acosta has said he’s considering automatically updating the salary threshold to keep pace with inflation.

Sonn said that wage laws in New York and other states often give their executive branch more leeway to change workplace rules without legislative action than the Fair Labor Standards Act gives the U.S. Labor Department.

Cuomo took advantage of his executive authority to increase minimum wage for fast food workers in 2015. The next year, he signed a minimum wage increase into law that the legislature had passed. The measure increases the wage floor in phases to $15 per hour over several years, with timetables that vary based on industry, region, and employer size.

Tip Credit Change Would Backfire, Group Says

Representatives from the restaurant industry plan to tell regulators that Cuomo’s plan to trim the tip credit will hurt the people it’s trying to help, Dugan said.

“If the tip credit is eliminated it would eliminate tipping entirely. It would significantly decrease the earning potential of servers,” he said.

In addition, restaurants would incur higher labor costs because they’d be responsible for paying the full minimum wage, rather than crediting some of the tips employees receive toward their minimum wage obligation, he said.

“Restaurants will have to make that up somewhere else and it often means raising prices,” Dugan said. That could hurt business, he said, which would affect workers’ tips, among other things. Businesses might also cut jobs and increase reliance on automation and self-service.

Customers who expect to spend a certain amount for their meal may offset higher menu prices by leaving smaller tips, Dugan said. Some regulators may think increasing the mandated wage by eliminating the tip credit means workers will earn more, but servers usually make more in tips than the minimum wage, he said.

He pointed to Maine as an example. The legislature in June repealed part of a law voters approved in the November 2016 election that eliminated the tip credit as part of a minimum wage increase. Tipped workers flooded the legislature with comments that the change would hurt their incomes.

Dugan would like to see New York regulators take a similar approach. “We’re hopeful that during the hearing process the industry will be heard,” he said.

To contact the reporter on this story: Jon Steingart in Washington at jsteingart@bloomberglaw.com

To contact the editor responsible for this story: Terence Hyland at thyland@bloomberglaw.com

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