Tipped Employees

Under New Jersey law, non-exempt employees are entitled to be paid at least the minimum wage and overtime when they work more than 40 hours per week. However, special rules can apply to employees who regularly receive tips such as waiters, waitresses, bartenders, barbers, hairdressers, bellhops and valets.

When certain conditions are met, New Jersey’s Wage and Hour Law (the “NJWHL”) allows employers to take a “tip credit” toward the minimum wage. In other words, sometimes they can count a portion of the tips the employee received toward the minimum wage requirement.

In 2024, the maximum tip credit an employer can take is $9.87/hour. Since the employee has to receive the full minimum wage ($15.13/hour in 2024), the employer can pay a tipped employee as little as $5.26/hour (the difference between the $15.13/hour minimum wage and the $9.87/hour maximum tip credit) plus tips.

Under the NJWHL, employers cannot apply a tip credit for every employee who receives tips. Rather, they only can do so for employees who “customarily and regularly” receive more than $30 per month in tips. As a result, employers cannot take a tip credit for employees who are likely to receive less $30 in tips each month.

Employers also cannot take any tip credit unless the employee has been paid at least the applicable minimum wage. Thus, for example, in 2024 an employer cannot take a tip credit for an employee unless it paid them at least $5.26/hour, and they received tips that bring their total pay to at least $15.13/hour.

In addition, employers cannot take a tip credit unless it told the employee, in advance:

1. That it plans to take a tip credit;
2. The amount it will be paying the employee per hour in wages (other than tips);
3. How much of a tip credit it will be taking, which cannot be more than the amount of tips the employee actually received; and
4. That the employee must keep all of the tips they received, except for tips subject to proper tip pooling.

Often, tipped employees share their tips, either by choice or based on a company policy. For example, sometimes the wait staff pools its tips and shares it with the waiters, waitresses and bus staff. However, a tip pool cannot be shared with the employer’s management, owners, or anyone else who does not normally receive tips.

When an employee’s tips are part of a tip pool, only the actual tips they actually received can count toward their tip credit.

Some tipped employees perform additional work that is not tipped. For instance, in addition to working as a waiter or waitress, an employee might spend time setting tables, cleaning the restaurant, acting as the host or hostess, or preparing food. If a tipped employee spends more than 20% of his or her time performing non-tippable tasks during any week, the employer cannot take any tip credit for that week.

Under New Jersey law, a tip has to be a gratuity, meaning an optional payment chosen by the customer or client. In contrast, a required service fee, such as a flat 15% or 20% of the entire bill imposed by a restaurant, is not considered a tip. As a result, service fees cannot be counted toward a tip credit even if the employee receives the service fee as if it were a tip.

When non-exempt tipped employees work more than 40 hours in a week, they are entitled to overtime pay, meaning time-and-a-half for their overtime hours. But, even when an employer has taken a tip credit, it still is required to pay the employee at least one-and-a-half times the full minimum wage rate. Thus, for example, in 2024 employers must pay tipped employees at least $22.70/ hour (1½ x $15.13/hour) for each overtime hour they work.

If you have concerns about your rights regarding minimum wage, overtime pay, or another violation of your workplace rights in New Jersey, or your legal rights have been violated, Rabner Baumgart Ben-Asher & Nirenberg, P.C. can help. Please feel free to contact us online or call us at (201) 777-2250 to schedule an appointment with one of our New Jersey employment lawyers.