In restaurants and diners, an employer may take a tip credit against the minimum wage. That means that the employer pays a wage of $2.13 per hour to the employee and hopes/anticipates that the employee will derive a sufficient number of tips, per hour, to equal or exceed the minimum wage. Often times, waiters and other service employees will meet and exceed the minimum, but if they do not, the employer must make it up for the hour or hours that may be insufficiently compensated.
This landscape may change. Under a proposed law, tipped/service employees in New Jersey would receive an increase in this mandated wage component of their compensation. This initiative is of great concern to the restaurant industry. The legislation (clearing the Assembly Labor Committee by a 5-3 vote) would limit the amount of tips that the employer could take and apply against the hourly minimum wage requirement. (The minimum wage rose to $8.25 per hour on NJ on January 1, 2014).
The details of the bill (A857) are that, after December 31, 2014, employers would be allowed to claim a tip credit of 60% against the minimum wage rate and this would drop to 31% after December 31, 2015. This would mean that workers would have to receive a wage rate (from the employer) of at least $5.69 per hour. The Assembly sponsor of the bill stated that “this is a matter of fairness and equitable pay.” He observed that “tipped employees in New York and Connecticut are earning more than twice what tipped workers are earning here in New Jersey. Let’s give these employees a better foundation to build from and increase their minimum wage.”
The New Jersey Restaurant Association takes strong issue with the contention and misapprehension that tipped workers do not earn the requisite minimum wage. The President, Marilou Halvorsen, made the point that if workers do not realize $8.25 per hour in tips they are yet guaranteed to receive the NJ minimum wage, i.e. $8.25 per hour. The fact is that many of these workers, the significant majority certainly, earns much more than the state minimum wage. In one restaurant chain, for example, PJ Whelihan’s, the waiters and waitresses are earning between $16-21 per hour.
The bill would likely hit restaurants hard. These additional costs would either be passed on to the customers or restaurants would (be compelled to) cut back on staff. So there might be a short-term “gain,” but employees, as a group would be the ultimate losers Employers would also have to deal with stricter, more detailed record-keeping/notice requirements.
This bill would, simply put, increase the hardships on restaurant employers to do business. In an atmosphere where the State government is ostensibly seeking to make New Jersey more business-friendly, this bill is the wrong approach.