The dinner rush has ended, the restaurant is quiet, and Lewis is just beginning his second shift of the night. After hours of serving tables, he now turns his attention to rolling silverware, restocking supplies, and cleaning the dining area. Even though these tasks don’t generate tips, Lewis is still paid the subminimum “tipped wage.”
For workers like Lewis, this practice isn’t an isolated incident; it’s a symptom of a larger problem deeply ingrained in the hospitality industry. Tip credits and the 80/20 rule, initially designed to offer a balanced approach to tipped employee wages, are frequently misused or misunderstood. Advocates describe wage theft as the “business model” for many employers in the hospitality industry.
This article breaks down the murky waters of tip credits and the 80/20 rule, explains how these laws are applied in New York and New Jersey, and explores the tools available to employees who feel they’ve been shortchanged.
What Are Tip Credits & the 80/20 Rule?
Tip credits are a mechanism that allows employers to pay workers who customarily receive tips a reduced hourly wage, as long as their earned tips bring their total pay up to the legal minimum wage. For example, under federal law, an employer may pay a tipped employee as little as $2.13 per hour, as long as the employee’s tips make up the difference to meet the $7.25 federal minimum wage. However, if the tips fall short, employers are legally required to compensate the worker for the difference. This system theoretically ensures fairness while acknowledging industries where tipping contributes significantly to take-home pay.
Yet, the reality is far more complicated. The practice hinges on accurate calculations and honesty. Employees must carefully track their hours and calculate whether their tips cover the gap to minimum wage. Unfortunately, many tipped workers aren’t made aware of these rights, and the burden of enforcement often falls on them rather than their employers.
The 80/20 rule adds another layer of complexity. This rule governs how much time a tipped employee can spend on non-tipped tasks while still being paid the reduced tipped wage. It dictates that no more than 20% of a server’s workweek can involve non-tipped “side work,” such as cleaning or setting up for the next shift. If that threshold is exceeded, the employee must be paid the standard minimum wage for those tasks.
State-Specific Context for New York & New Jersey
State-level laws also play a pivotal role in determining wages for tipped workers. Even though the federal Department of Labor recently withdrew the 80/20 rule at the national level, state-specific provisions remain enforceable in New York and New Jersey.
Both states maintain their versions of the tip credit system and the 80/20 rule:
- New York. Food service workers earn a cash wage of $11.00 per hour in New York City and Long Island/Westchester County, and $10.35 in the rest of the state. Employers can apply a tip credit of $5.50 or $5.15, respectively, to meet the minimum wage requirement. The state also enforces its 80/20 rule, so any non-tipped duties exceeding 20% of an employee’s shift must be compensated at the full minimum wage.
- New Jersey. New Jersey employs a similar subminimum wage system. As of 2025, New Jersey allows employers to pay tipped employees a minimum cash wage of $5.62 per hour, with a maximum tip credit of $9.87, to meet the state minimum wage of $15.49. Like New York, New Jersey maintains its own version of the 80/20 rule.
Common Ways Tipped Employees Are Cheated Out of Fair Wages
Tipped workers walk a tightrope between employment laws and employer practices, often to their disadvantage. Below are some of the most common ways employers misuse tip credits or violate the 80/20 rule.
1. Excessive Side Work
Imagine showing up to work only to find that your first two hours are filled with rolling silverware or cleaning restrooms, followed by a two-hour dinner rush, and capped by another hour of stocking supplies. These non-tipped tasks are essential to the restaurant’s operation but do nothing to fill your tip jar. When side work exceeds 20% of your shift, your employer is required to pay you the full minimum wage for those hours. However, many fail to do so, using tip credits for the entirety of your shift.
2. Failure to Inform Workers About Tip Credit Policies
Under both state and federal laws, employers must inform their workers of tip credit policies in writing, including how much they will receive in hourly wages and how their tips are used to reach the minimum wage threshold. Yet, this step is frequently skipped, leaving workers unaware of the exact terms of their compensation.
3. Non-Tipped Tasks Disguised as Tipped Work
Tasks like kitchen prep, cleaning, or handling stock are distinctly non-tipped duties. Even so, some employers classify such work as part of a tipped role to continue paying workers the lower tipped wage. This is a direct violation of wage laws but remains a common practice in industries such as restaurants, beauty spas, and event catering.
4. Illegally Dipping into Tips
Some establishments require employees to share tips with management, kitchen staff, or even owners. While “tip pooling” is legal, it must be limited to employees who customarily receive tips. Managers or owners cannot take a share — when they do, it becomes tip theft.
How Tipped Employees Can Detect Wage Violations
Navigating the complexities of tipping laws can often feel overwhelming. However, by staying vigilant and organized, you can more effectively detect violations and protect your rights. Below is a checklist and advice for tipped employees in New York and New Jersey.
1. Track Your Hours
Your employer’s payment obligations hinge on accurately recorded hours, making this step critical. Use a dedicated notebook, app, or spreadsheet to log your clocked-in and clocked-out times for every shift. Be sure to include lunch breaks and moments when you're asked to leave early or stay late.
2. Log Non-Tipped Work
Identifying when you transition from tipped to non-tipped duties is essential under tip credit laws. Keep a daily record of all the tasks you perform, noting how long each takes. Clearly distinguish between tipped duties, like serving tables, and non-tipped tasks, such as cleaning or stocking supplies.
3. Calculate Hourly Earnings
Your combined tips and hourly wage must meet or exceed the state’s minimum wage every hour of every shift. Regularly calculate these figures to ensure compliance.
4. Know Your Rights
Education is your strongest line of defense. Familiarize yourself with the specific tip credit and wage laws in your state and city, including the 80/20 rule. Knowing these laws will empower you to recognize violations and advocate for yourself more effectively.
5. Document Everything
Even seemingly minor discrepancies can signal wage theft. Keep meticulous records of your schedules, tips earned, and any related communication from your employer.
6. Take Action When Necessary
If you spot inconsistencies or outright violations, raise your concerns with your employer or document your complaint. If issues persist, file a formal grievance with your state’s labor department or consult legal counsel.
Reach Out to Dedicated & Determined Minimum Wage Violations Lawyers Today
For tipped workers, wage theft is a lived reality that undermines economic stability. Employers who violate the laws not only harm their workers but also perpetuate systemic inequality in industries that depend on a low-wage workforce.
If anything in your pay stubs or work assignments raises a red flag, acting quickly can make a significant difference. Our legal team is here to act as your advocate. If you believe your wages have been shortchanged through improper tip credit usage or 80/20 rule violations, contact our New York City minimum wage violations attorneys for a free consultation.