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What is a Tip Credit and Why is it Important That a Tipped Employee Knows?

Tip Credit ClaimsCertain employees don’t rely on a regular hourly wage paid by an employer. They receive the majority of their pay through tips. These are workers like servers, bartenders, and cleaning staff. Positions like these are ones in which customers are expected to tip. That’s because it’s actually legal in most states, including New Jersey, for employers to pay these workers less than the state or federal minimum wage. A process called “tip credits” means that the tip a worker receives, along with the smaller hourly wage, will reach the legally required minimum wage. For a lot of service workers, their tips are sufficient enough. But for those in New Jersey who don’t make enough money to reach the minimum wage, their employers are required to make up the difference.

Service workers are often treated unfairly, often working in manual labor positions and not always under the best conditions. That’s why it is important that employees understand the FLSA’s tip credit law well, so employers don’t try to stiff them for the pay they are owed. Often, service workers don’t feel like they can pursue legal action against an employer for unpaid wages, but they are protected under New Jersey employment laws. As an employee, if you are facing unfair and illegal behavior by your employer, a wage and hour attorney can help you find your voice and receive all of the money that you are owed. Contact Console & Associates, P.C. for a free consultation.

What is a Tip Credit?

Familiarizing yourself with the U.S. Department of Labor’s rules pertaining to tip credits will help you ensure that you are being paid. The regulations are provided under Title 29, Subpart D – Tipped Employees Section 531.50. The minimum wage in New Jersey is $14.13 as of January 1, 2023, but there are certain employers who do not have to pay their employees the full minimum wage. These are called tipped employees, and it is expected that the money they receive from tips will make up the difference between the wage they are paid by their employer and the minimum wage.

For example, the federal minimum wage is $7.25. That means an employer must pay an employee a minimum of $2.13. So, according to the FLSA, the $5.12 that remains is the hourly tip credit.

Employer’s Obligations to a Tipped Employee

If an employer wants to qualify for the tip credit, there are a few things that they must disclose to the employee per the FLSA. The following information can be discussed verbally or in writing. However, it is advised that the agreement be made in writing. The employer must inform the employee:

  • The wage that they will be paid
  • The amount that will be credited by the employer
  • That they can only utilize the tip credit if the employee has prior knowledge
  • That the employee will keep their tips unless there is a tip pool
  • The tip credit will not be more than the total of the employee’s tips

What if an Employer Fails to Inform a Service Worker?

Until such time that an employer notifies an employee of the obligations listed above per the FLSA, an employer must pay an employee the federal or state minimum wage, whichever is higher. They are not to collect a tip credit until the information is disclosed to an employee.

Is Non-Tipped Work Subject to a Tip Credit?

If an employee is required to spend some of their work time doing duties where they will not receive a tip, such as washing dishes or restocking, the FLSA does allow employers to utilize the tip credit in certain situations. The New Jersey DOL has enacted an 80/20 rule regarding non-tipped duties. If an employee spends more than 20% of their time doing work that is not tipped, the employer cannot take a tip credit.

Are Any Employee Deductions Legal?

Employers can take certain deductions from an employee’s pay, such as employer convenience, employee benefit, and legally required deductions. But after all the deductions are made, the employee should still have received the minimum wage.

An employer can require that an employee purchase a company uniform for a specific position. However, the employee must still receive the minimum wage, even with the cost of the uniform.

Are Service Charges Considered Tips?

Compulsory service charges are not considered employee tips under the NJDOL. An employer cannot take a tip credit for such charges.

What To Do If Your Employer Owes You Wages

No Fee PromiseThe best way to get an employer to pay the wages owed is to consult with an attorney familiar with the New Jersey DOL regulations. The wage and hour litigation attorneys at Console & Associates, P.C. can help you learn more about your rights as a tipped employee. We offer consultations to any employee who believes that their employer is engaging in unfair and illegal practices by not following the regulations laid out by the DOL and FLSA free of charge. You may have legal options that will help you recover any lost wages.

To learn more about Console & Associates, P.C., give us a call or complete our contact form to talk with one of our knowledgeable wage and hour lawyers. We won’t pressure you to bring a case, but we will answer your questions and provide you with the information you need to make the best decision for yourself and your family. If you decide to bring a wage and hour claim with Console & Associates, P.C., you won’t pay for our legal representation unless we can recover compensation on your behalf. That’s part of the “No Fee Promise” we make to each one of our clients.