The Rights of Tipped Employees in New Jersey
Posted on behalf of Lynch Law Firm on December 29, 2017 in Labor and Employment News
In New Jersey, a tipped employee is considered to be a worker who regularly earns more than $30 in tips each month.
Tipped employees often have a different set of rights than employees receiving hourly wages or an annual salary. The rights of tipped employees can be complex and, unfortunately, are often violated by employers.
However, both the State of New Jersey and the federal government have laws in place to protect tipped employees’ wage rights. These wage laws ensure that tipped employees are able to earn the state or federal minimum wage and determine how employers fairly distribute an employee’s tips.
Below, the Lynch Law Firm’s New Jersey wage and hour attorneys outline the rights of tipped employees in New Jersey. If you believe your rights have been violated, do not hesitate to contact us to schedule a free, no obligation consultation to find out if you have a wage and hour claim.
What Is a Tip?
Tips consist of any money customers leave specifically for an employee instead of his or her employer. Customers leave tips for employees voluntarily, and the money is left based on the services provided.
Since tips are left voluntarily, the decision to leave a tip and how much money it should be is made solely by the customer. Employers and employees are not allowed to determine how much customers must leave when tipping.
In New Jersey, employers can pay tipped employees less than minimum wage as long as employees earn enough in tips to make up the difference. This is referred to as a “tip credit.”
The New Jersey minimum wage is $8.44 an hour, and the tip credit maxes out at $6.31. That means employers must pay tipped employees at least $2.13 an hour in the state of New Jersey.
If tipped employees still do not end up making $8.44 an hour with tips, the employer is responsible for paying the difference.
New Jersey Tip Pooling Laws
Tip pooling is a practice commonly used in tip-based professions where all tipped employees place their tips in a collective pool and distribute the total amount between all tipped employees who participated.
Only tipped-employees can participate in a tip pool. That means tipped-employees participating in a tip pool do not have to their share tips with non-tipped employees, such as cooks or dishwashers. Additionally, tips distributed into a tip pool cannot go to an employer or manager.
Mandatory Service Charges
Some restaurants will include a mandatory service charge on bills for large parties or private events as an extra fee on top of the bill.
However, this is not a tip and often goes to the employer, not the employee. Although employers reserve the right to share a mandatory service charge with their employees, they are not required to.
In 2014, the Internal Revenue Service ruled that any portion of a mandatory service charge paid out to employees must be treated as wages, not tips. This means the employer must withhold and pay Social Security and Medicare tax on the amount of a mandatory service charge shared with employees. Additionally, an employer cannot claim a credit against its tax obligations for these amounts, unlike tips.
Furthermore, an employer must include the amount of a mandatory service charge paid to an employee as part of his or her hourly wage when determining overtime payments. For a mandatory service charge to count as a tip instead of a charge, it must meet all of the following requirements:
- The payment must be voluntarily made to the employee
- The customer must have the right to determine who receives the payment
- The customer must have the right to determine the amount
- The amount cannot be set or influenced by an employer
When a customer leaves an employee a tip on a credit card, the employer must pay the credit card company a percentage of each sale. Employers have the right to deduct the processing fees from the tip amount before giving the employee the tip. However, a credit card charge cannot reduce the employee’s wages below New Jersey’s minimum wage.
Additionally, the amount derived from the credit card tip must be paid to the employee no later than the regular pay day and cannot be held while the employer is waiting for the credit card company to reimburse it for the charge.
Tipped employees are entitled to overtime, just as non-tipped employees are. This entitles them to time and a half for all hours worked over 40.
If the employer takes a tip credit, overtime is calculated based on the full minimum wage, not the lower wage payment. Additionally, an employer cannot take a larger tip credit for overtime hours than for regular hours. There are only certain circumstances where an employer can claim an additional overtime tip credit.
If you are a tipped employee and believe your employer has illegally withheld your earnings or violated New Jersey’s labor laws, you may have legal options.
At Lynch Law Firm, our wage and hour attorneys are dedicated to protecting the rights of workers and helping them recover the compensation they deserve. We will provide you with a free, no obligation consultation to review your wage and hour claim and determine if your employer illegally withheld your earnings.
All of our services are provided on a contingency fee basis at no upfront cost. This means you will only have to pay us if we recover compensation for your lost wages.
Call (800) 518-0508 to schedule a free consultation.