As the New Jersey legislature considers eliminating the tip credit—a move that would require all restaurant workers to be paid the full minimum wage regardless of tips—the hospitality and business communities are pushing back.
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In a recent conversation hosted by Mandelbaum Barrett PC, Daniel Klim, President and CEO of the New Jersey Restaurant and Hospitality Association (NJRHA), joined Brent Pohlman and Damian Conforti from the Hospitality Law Practice Group to unpack the legal and economic impact of this proposal. Their message was clear: this legislation could upend a system that works well for employers and employees alike.
What’s the Proposed Bill on Tip Credit?
Assembly Bill A-5433 aims to phase out New Jersey’s tip credit over five years, ultimately requiring employers to pay the full minimum wage without factoring in tips received by employees. Although it was heard before the Assembly State and Local Government Committee, the bill was held for further discussion—a sign of its controversial nature.
According to the bill’s language, 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.”
What the Industry Is Saying About Bill A-5433
“There are 20,000 restaurants and over 375,000 hospitality employees in New Jersey,” said Klim. “No one in the industry is asking for this change.”
The New Jersey Business & Industry Association (NJBIA) also voiced strong opposition to the bill during a recent Assembly committee hearing. They cited economic research showing that eliminating tip credits often results in lower overall earnings for workers and fewer jobs in the hospitality sector. States without tip credits reportedly have the lowest tipping rates nationwide, and businesses in those regions have faced higher costs and difficult decisions around staffing and pricing.
According to a 2022 Employment Policies Institute report, eliminating the tip credit could have the following national consequences:
- A 6.1% decrease in restaurant employment for every $1 increase in the tipped minimum wage
- A 5.6% drop in tipped restaurant employee earnings
- Up to 801,224 restaurant jobs lost, including 466,040 tipped positions
- $2.2 billion in total annual earnings lost by full-service restaurant employees
These findings support what many New Jersey restaurateurs are already warning: increased payroll taxes, reduced hours, job cuts, and even restaurant closures.
Legal and Compliance Considerations of Tipped Employees
From the legal side, Brent Pohlman emphasized that the current tipped wage system is already subject to stringent regulation under New Jersey wage and hour laws:
- Employers must notify employees in writing of their tipped status and pay structure.
- Employers must ensure all tips go directly to tipped staff (not management).
- If tips fall short of minimum wage, employers must make up the difference.
- Overtime pay is calculated using the full minimum wage—plus tips.
Failure to comply can expose employers to significant penalties, including being forced to pay employees as if they never received tips at all.
What’s Next for the Tip Credit in NJ?
Although Bill A-5433 was heard in committee, it was held for further discussion and currently has no Senate companion bill. Still, the industry is remaining vigilant. Advocacy groups are encouraging restaurant owners, employees, and patrons to speak out against the proposed changes and help educate lawmakers on how the system actually works—and who it benefits.
The message from industry leaders is clear: the current tip credit model is working, and changing it could do more harm than good.
