Service employees, such as waitstaff, bartenders, cleaning staff, and movers, rely on tips to supplement their hourly wages. In fact, most states, including New Jersey, specifically allow restaurants and bars to pay workers less than minimum wage, anticipating that they will earn tips to make up for the difference. This is referred to as “tip credits.” And, for the vast majority of workers, their tips exceed the wages their employer pays, and tip credits are not much of an issue. However, for service workers who do not receive enough tips, New Jersey law requires employers to ensure service workers receive at least the minimum hourly wage.
The service industry is tough. Workers often experience harsh working conditions and too often face unfair employment and labor standards. Understanding the FLSA’s tip credit is crucial to ensuring that a tipped employee receives complete protection under the law. Employees who believe that their employer has not paid them fairly may be able to pursue legal action against their employer to recover the wages they are owed. Unfortunately, service and food workers often feel as though they do not have a voice. It is also common for these employees to decide not to raise their concerns over fears of being terminated. However, New Jersey employment laws protect workers who speak out against unfair wage practices. And holding employers accountable to wage and hour violations is the only way to ensure these unfair employment practices are put to a stop.
What is a Tip Credit?
The U.S. Department of Labor (DOL) provides the current tip regulations under Title 29, Subpart D - Tipped Employees Section 531.50. Although, as of January 1, 2023, the minimum wage in New Jersey is $14.13, the law allows certain employers to pay tipped employees less than the minimum wage. Tipped employees are those individuals who work in occupations where they customarily and regularly receive tips amounting to more than $30 per month.
The law is meant to provide a way to count an employee’s tips toward the employer’s obligation to pay minimum wage. Under the FLSA, the maximum FLSA hourly tip credit that an employer may take in a non-overtime workweek is $5.12. This is the difference between the direct cash paid, which cannot be less than $2.13, and the federal minimum wage, which is $7.25.
What Are an Employer’s Obligations under the FLSA?
There is a fundamental power inequity between employers and tipped employees. Employers who wish to utilize the tip credit must provide their employees with specific information. Under the FLSA, employers must notify the employee of the following information:
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The wages the employer will pay,
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The amount the employer will credit against tips,
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Disclosing that the tip credit will not exceed the value of the tips,
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Notification that the employer can only use the tip credit if they notified the employee, and
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Notification that an employee must retain all of their tips, except if the tips are collected for a lawful tip pool.
Employers can provide the above information orally or in writing; however, like any other employment agreement, receiving all communication in writing is advisable.
How Can Service Workers Get an Employer to Pay Owed Wages?
In light of the NJDOL’s new regulations, employees should consult with an employment attorney to review their employment contracts to ensure that their employers abide by the law. N.J. Employers who violate the FLSA may be subject to several claims.
Failure to Inform Claims Against Employer
Under the FLSA, employers must notify employees of their rights as tipped employees. Employers who fail to meet these notice requirements are not entitled to take the tip credit and must meet the federal minimum wage standard. Moreover, employers who take an employee’s tip credit without providing notice must pay the employee the difference between the cash wage and the minimum wage for the time before the employer provides notice.
Legal Claims Against Employers Making Illegal Deductions
Generally, there are three categories of deductions an employer can take from an employee’s pay, legally required deductions, deductions for the employer’s convenience, and deductions for the employee’s benefit. While the law permits an employer to deduct an employee’s pay to recoup certain expenses, the employer must still meet federal and state minimum wage laws.
For example, many establishments require their employees to meet certain dress code standards or uniforms. While an employer can deduct the cost of a uniform from an employee’s pay, the cost cannot reduce the employee’s wage below the minimum hourly rate in any workweek. In these cases, the law requires the employer to reimburse the employee for the deficiency.
Can an Employer Take Tip Credit for Unrelated or Side Work?
Under certain circumstances, the FLSA permits employers to utilize the tip credit when an employee spends their time doing non-tipped duties. However, the NJDOL codified the DOL’s 80/20 rule. Under NJ law, the 80/20 rule prohibits an employer from taking a tip credit when an employee spends more than 20% of their time engaging in non-tipped duties, such as cleaning, setting tables, etc.
Can My Employer Classify Service Charges as a Tip?
The NJDOL does not consider compulsory service charges as part of an employee’s tips. Therefore, even if the charge is distributed to employees, the employer cannot count it towards the tip credit.
Service workers may face many challenges when attempting to convince an employer to pay them fairly. An experienced employment law attorney can come in at any stage of the process to ensure an employee is treated fairly and, if necessary, file legal action to compel an employer to pay unpaid wages.
