Your company has likely received numerous e-mails and notifications to remind you that, effective July 1, the minimum wage in New Jersey has increased to $10.00 per hour. However, the impact of this increase, and future increases, on employers of tipped staff has not been adequately addressed in the mainstream discussions of the change. Here’s what employers need to know.
For tipped employees, the July 1 increase brings the employee’s required base pay to $2.63 and increases the amount of the available tip credit to $7.27. This cash base pay and the tip credit, when added together, equal the state’s regular minimum wage. Along with the minimum wage, the wages for tipped employees are set to increase at regular intervals through January 1, 2024. When the regular minimum wage will be $15.00, the required cash wage will be $5.13, and the allowable tip credit will be $9.87.
The trouble emerges when employers seek to comply with the Fair Labor Standards Act [FLSA]. One requirement of the Act is that the tip credit “claimed by the employer cannot exceed the amount of tips actually received by the tipped employee.” Many businesses have had difficulty with insufficient tips in their “off season” or on “slow shifts.” The result is that their tipped staff is not receiving sufficient tips to cover the full amount of the tip credit claimed by the employer. This means that the employee is not being paid the mandated minimum wage. The FLSA requires that the cash wage paid to an employee and their tips, when combined, equal at least as much as the state’s minimum wage. While this was sometimes an issue when the tip credit was a mere $6.72, in less than five years, the amount of the available tip credit will increase significantly to $9.89 per hour. We expect a substantial uptick in those employees who claim that their tips received are not sufficient to cover the tip credit claimed. Accordingly, businesses who do not track their employee’s tips must keep a careful watch on their total sales to ensure that sufficient tips are likely being earned.
If a tipped employee’s tips are not sufficient to cover the amount of the tip credit, the violation is the loss of the entire tip credit for the period in question. Often lawsuits for such violations are brought by groups of employees. For chain restaurants or larger independent operations, the damages could quickly multiply and become insurmountable. In addition to the lost wages, impacted employees would be entitled to the payment of their own attorney’s fees for bringing the action against your company.
It would be prudent to consult an attorney who has the restaurant and hospitality experience to help defend your company in such litigated matters and, better yet, who can help prevent them from occurring through proper planning and consultation.
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