We are all accustomed to tipping our servers and bartenders when enjoying a meal and drinks at a dining establishment. In fact, during the pandemic, many customers tipped more frequently and generously to support service workers during the challenging time. Technology has played a role, too, as digital tablets with pre-selected tip amounts—often in the 20-25% range—have normalized higher tip percentages. Lastly, tipping has evolved from a discretionary act of appreciation to a more expected norm.
However, a proposed bill in the New Jersey State Assembly (A-5433) may not only upend these workers’ ability to earn the same wages but also threaten financial hardship to New Jersey’s restaurant industry and raise the cost paid by customers for a restaurant meal.
Currently, tipped employees earn a portion of the minimum wage while on the clock, and make up the difference toward that hourly wage with tips. Thanks to the tip credit system that’s in place, employers can count tips toward meeting the minimum wage requirements for those workers, which keeps payroll down, while incentivizing tipped employees to provide excellent service.
A-5433 aims to raise these workers’ hourly wage to the state minimum wage incrementally over five years, with a concomitant phaseout of the credit employers take for tips their employees receive.
The bill states that the “eventual elimination of the tip credit…will require that the employer pay the full amount of the minimum wage without regard to any amount of tips received by the employee.”
This ultimately will leave restaurant employers paying their wait staff more and tipped employees earning less.
Although the objective of the bill is to ensure tipped employees get an equitable cash wage in line with other workers, this will backfire if implemented. Establishments will have to raise prices to accommodate increased labor costs, will have to pay more in wages and payroll taxes, and may be forced to cut staff (or close their establishments altogether). Patrons will be made aware that food and beverage prices have increased to make up for the elimination of the tip credit, and they will tip less because the people waiting on them are earning more per hour AND the cost of dining out is higher.
Essentially, this bill consigns servers, bus staff, and bartenders—who are accustomed to making a lot more than minimum wage now as result of tips—to work for less than they are used to earning and put the financial squeeze on hospitality employers who are already dealing with slim profit margins and staffing issues. Plus, if owners also decide to cut front-of-house staff due to the cost in labor expense, this will leave those remaining employees on each shift doing more work for less money.
The New Jersey Business & Industry Association (NJBIA) is also against the bill and cited economic research about the correlation of tip credits with worker earnings. In short, eliminating tip credits often results in lower overall worker earnings and fewer hospitality jobs.
What’s more, no one in the hospitality industry is asking for this change. Tipped employees do not want to work even harder than they already do to make their money, since customers will be disincentivized to tip their customary 15, 20, or 25% of the tab for service they receive. Restauranteurs will have to make difficult decisions about staffing levels as their payroll will increase. These factors could affect the quality of service delivered and could force some establishments to adopt a different service model altogether.
The current system is working well for employers, tipped employees and restaurant goers. There are stringent regulations in New Jersey to protect tipped employees under state wage and hour laws. Keep the tip credit and give the state’s hospitality industry a boost, not a barrier, to providing positive experiences for both employees and patrons.
The opinions expressed in this op-ed are those of the author and do not necessarily reflect the views of ROI-NJ.
About the authors:
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Damian P. Conforti, partner, is Cochair of the Hospitality Services practice at Mandelbaum Barrett PC. |  |
Brent R. Pohlman is a partner in the Labor and Employment practice at Mandelbaum Barrett PC. |
