Employment and minimum wage laws currently in place in the United States are not always particularly clear, or easy to follow, especially when you have to consider pay for tipped employees. Other countries perhaps have not adopted the same tipping system as us in the United States, with the majority of service-based employees earning the majority of their paychecks through tips in the U.S.

Those employed by restaurants, bars, cafes, and pretty much any other service providers will typically expect to be paid a small hourly wage, which is then largely supplemented by tips (gratuities). For many service-industry employees, basing their entire compensation on tips and relying on them to cover bills and other living expenses is incredibly common throughout the nation.

What is a Tipped Employee and What Makes a Tipped Employee?

For many trying to wrap their heads around the minimum wage in the United States, and more specifically New Jersey, it is incredibly important to understand what constitutes a tipped employee. A tipped employee is somebody who earns $30 or more per month in tips rather than a fixed salary, or an hourly wage. U.S. Federal law establishes the rules of what is considered to be a tipped employee vs. a non-tipped employee.

So, if an employee, whether full-time, part-time, or working a temporary or seasonal job, customarily and regularly receives in excess of $30 in monthly tips, then they are considered a tipped employee by New Jersey.

Tipped employees will usually include workers such as bartenders, servers in restaurants, hotel workers, valet car parking attendants, and others working in similar ‘service’ industries. The New Jersey laws surrounding the definition of a tipped employee in NJ follow fairly stringent guidelines.

New Jersey Tipped Minimum Wage

To correctly comply with minimum wage laws, employers must ensure that when they passing on tips to their employees, the total compensation in addition to the tips comes to at least the state minimum wage that has been set for New Jersey, which is also known as the New Jersey tipped minimum wage.

If the tips that employees recieve in New Jersey do not equal or surpass the state minimum wage, then it is the employer’s responsibility to make up the difference in the employee’s hourly wage.

There are many different components of employment law that will have a direct impact on how New Jersey employers handle tipped employees. Understanding the minimum wage in New Jersey, the federal laws controlling wages, and how pay and wages work for tipped employees is incredibly important if you are thinking about starting a service-related business with tipped employees. Not only this, but keeping up to date with the state minimum wage and tipped minimum wage is crucial too – the minimum wage in New Jersey typically increases once a year based on several factors, however, some states have mid-year increases too.

Tipped minimum wage in New Jersey

The minimum wage in New Jersey is currently sitting at $12.00 per hour for non-tipped employees. The tipped minimum wage in 2021 is $4.13 per hour for tipped employees in New Jersey. New Jersey law requires the New Jersey Department of Labor and Workforce Development to calculate a minimum wage increase each year.

The annual calculation is based on the percentage increase in the Consumer Price Index (CPI) within the state, which determines what the wage should be due to inflation.

The CPI is calculated based on what consumers pay for goods, house price increases, and other significant financial factors. The minimum wage for both tipped and non-tipped employees rises based on the CPI. You can learn more about the New Jersey minimum wage, and the factors that go into the annual increases on our minimum wage page.

Fair Labor Standards Act (FLSA) and Tipped Employees

The Federal Fair Labor Standards Act, also known as the FLSA, is a federal law from the U.S. Department of Labor. This law establishes a national minimum wage, defines classifications for employees, and covers other essential standards and requirements for employers.

Federal law requires that employers make tipped employees aware of the cash wage paid (currently, the national direct hourly salary is $2.13 per hour), that they let them know about the tip credit, and explain any tip pooling systems at the workplace. Because New Jersey’s minimum wage rate is higher than the federal minimum wage rate, the state laws supersede the federal regulations.

Tipped Employees, Tip Credits, and other Considerations for New Jersey Employers

Due to the rules and laws for tipped employees being more complex than non-tipped workers, there are other ways that employers can calculate the minimum wage amount earned by a tipped employee. One of these ways and methodologies is implemented through tip credits.

The current tip credit in New Jersey is $7.87 per hour – this means that employers can claim a $7.87 hourly credit against the tipped employee’s minimum wage. This credit effectively turns the $12.00 minimum wage into a $4.13 per hour minimum wage that employers must pay to tipped employees no matter how much they earn.

Let’s assume tipped employees earn less than $7.87 per hour as their tipped wage. In that case, the employer must pay the difference between what they made and $4.13 per hour. This pay is called the minimum cash wage. It ensures that tipped employees earn the minimum wage, even if a slow workweek or other downturns occurs where they cannot receive sufficient tips.

This minimum wage rate ensures that servers and others in tipped roles in New Jersey that do not make enough with tips can earn a weekly wage when working full-time of $480. Alternatively, some tipped employees in New Jersey will work more than 40 hours per week, especially if they are covering shifts for other employees, and may qualify for overtime pay.

What Does This Mean for Your Business?

If you are starting a new business in New Jersey or perhaps considering New Jersey as a location for buying a business that has employees who receive tips, you should take this information about tipped employees and the state minimum wage into account.

While you may want to speak with an employment attorney or accounting firm for legal and tax advice about your business, understanding the minimum wage laws for tipped employees can help you make an informed decision.

In New Jersey, much the same as most other U.S. states, tipped jobs are a mainstay of the economy and accessible for those seeking employment given the tourism-heavy nature of the New Jersey economy. Today there are just over 19,000 eating and drinking establishments in New Jersey, and there are almost 350,000 restaurant and food service jobs in the state.

Most U.S. states and territories require that tipped employees make either the full state minimum wage or make a minimum cash wage higher than the FLSA’s requirements. Regardless of where you locate your business in the U.S., you will likely need to have a pay rate for tipped employees higher than the federal tipped employee rate.

If you have a claim related to employment, you can find out more information on the New Jersey Department of Labor’s website.