Many NJ restaurants could close under a new tipping rule, owners warn

💵 Bill would phase out tip credit
💵 Tipped workers make minimum wage, different system
💵 New model would mean price hikes, restaurant reps say

TRENTON — A proposal to boost the minimum wage for tipped workers in New Jersey has spurred warnings from restaurant owners who say it would lead to disaster for their industry.

The bill would amend the state’s minimum wage law, phasing out a “tip credit system” that allows any employer of tipped workers to count a portion of earned tips toward the minimum wage.

UPDATE: Hearing at Statehouse slams idea for tipped workers

New Jersey Restaurant and Hospitality Association President and CEO Daniel Klim says the measure is rooted in the misconception that tipped staff do not already earn minimum wage.

“If they’re making $5.62 an hour and they don’t make enough in tips to make the state mandated $15.49, the employer is obligated by law to make that up,” Klim said in an interview with New Jersey 101.5.

Employers that don't pay the difference face hefty fines.

How wages for tipped employees work

Essentially, every tipped employee is earning minimum wage and often earning more.

The average tipped employee in New Jersey is already making $22 an hour, Klim says, while some are making “well above that” under the current system.

“It changes the business model of the entire industry [so that] an owner/operator would have to pay 200% times more an hour for an employee and the concern there is prices would have to go up,” he said.

Under New Jersey labor law, a tipped employee is any worker — full-time, part-time, or temporary — in an occupation in which they “customarily and regularly receive more than $30 per month in tips.”

Bill A5433 was introduced last month by Assemblywoman Verlina Reynolds-Jackson, D-Mercer, and was up for consideration by the Assembly on Thursday.

Individual restaurant owners and operators are calling the measure a dire situation.

“This is bad legislation for servers, bartenders, restaurant owners, and diners,” according to a social media post shared by the team behind sister restaurants Lita, Judy and Harry’s, and Heirloom Kitchen.

“It threatens the flexible, high-earning potential that tipped employees currently enjoy, and could drive many beloved local establishments to close their doors for good,” the post also said, saying small businesses “are already operating on razor-thin margins.”

A similar move in Washington, D.C., already phased out the tip credit for employers —with harrowing results, Klim said.

In D.C., Initiative 82 was approved by voters in 2023. The move was a main factor in 3,000 workers losing their jobs and the closure of nearly 75 restaurants, according to Klim.

The Restaurant Association of Metropolitan Washington has been calling on legislators to repeal Initiative 82 by July, Axios reported.

In New Jersey, as state lawmakers in the Assembly were set to consider the measure, a tip credit rally was planned by restaurant workers, owners and supporters outside the Statehouse on Thursday morning.

The minimum wage/tip credit measure also applies to beauty salons, where staff are tipped for hair, nail and spa services.

New Jersey also already has what is called "the 80/20 rule" for tipped employees doing non-tipped work.

When a tipped employee spends more than 20% of their time performing related non-tipped duties, the employer is prohibited from taking a tip credit for that time — whether folding napkins or restocking ingredients at a restaurant, or salon workers mixing hair treatments.

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