Some New Jersey lawmakers are proposing to eliminate the state’s tip credit – and local tipped restaurant workers aren’t buying it.
Currently, New Jersey law requires all employees earn $15.49 per hour. For tipped restaurant employees, this hourly minimum can be comprised of an employer-paid cash wage of $5.62 per hour as long as tips make up the difference from the regular minimum wage rate.
A new bill, A 5433, would eliminate this base wage plus tips system, is largely opposed by those who know restaurant work best: tipped servers and bartenders.
Local tipped restaurant workers say they are thriving under New Jersey’s current base wage plus tips structure. In fact, the Bureau of Labor Statistics estimates the average New Jersey tipped server or bartender earns about $24 per hour, well above the current state minimum wage. Employees themselves report earning even more through their tips – as much as $50 per hour.
Here’s what they had to say about New Jersey’s current tipping system in a recent state Assembly hearing:
- “I am paying my way through nursing school, and I cannot accomplish my goal on a minimum wage job. I make double that as a bartender.” – Melissa, Bartender
- “I started bartending in 2013, and I have been earning about $40 an hour. This job has allowed me to pay my student loan, max out my IRA, and take numerous family vacations. This job has been my direct access to the American Dream as it has for thousands of colleagues across the state.” – Tim, Bartender
- “[I] went to school for hospitality and worked my way up into management. I’m back to bartending. I have always made more than minimum wage in service positions. They pulled my payroll, most recent pay period, I earned $44.42 an hour…This is not a minimum wage job.” – Trisha, Server
For these reasons, local tipped workers have spoken out against the proposed legislation:
- “Eliminating the tip credit is going to eliminate those special places where we gather for all of our momentous mile markers of life.” – Nicholas, Server
- “I do not want to imagine how worse service can and will get with this bill… it will weed out the very best from the industry.” – Hansel, Restaurant Staff
- “I have been in the industry for over ten years, starting when I was fifteen years old making money wherever I could… I am very opposed to this bill, labor and food costs will go up and this industry is going to die.” – Steven, Server
Restaurant operators also reported how they may be forced to adjust if the proposed changes were to become law:
- “We’re talking about a probable 10% increase in what we’ll have to pay everyone in the building to be in the building. And with margins that are usually about 10% to begin with … we’re talking about businesses either closing or letting go of employees to make up the difference.” – David, Chef
- “If this bill passes, it will not only increase our payroll costs dramatically, by 200%, but it would further create a disparity between the front of the house and back of the house, who are not tipped. This puts our restaurant’s survival in jeopardy.” – Jeanne, Restaurant Owner
- “The payroll at my business will double or triple, and [my restaurant] will no longer be viable after 90 years in business, that’s eight jobs gone…Right now each server works four to six tables, and if this bill passes, they will have to start serving eight to twelve.” – Luke, Restaurant Owner
- “I was a server for nine years before I made the difficult decision to switch to a [salaried] manager position, I think it will be the death of the service industry if we pass this bill.” – Mike, Restaurant Manager
These concerns aren’t shocking – they’re well-documented in decades of economic research. Economists find when tipped wages are increased and/or eliminated:
- Jobs are lost. University of California-Irvine economists find every $1 increase in the tipped minimum wage results in up to 6% employment loss in the restaurant industry.
- Tips go down. Cornell professor Michael Lynn finds in states where tipped minimum wages go up, tipping percentages left by full-service restaurant customers fall.
- Employees’ take home pay declines. UC-Irvine economists also find every $1 increase in the tipped wage causes 5.6% employee earnings loss.
- Restaurants shut down. A Harvard Business School study finds that every $1 increase in the minimum wage for restaurant workers increases the likelihood of restaurant closure by 14%.
New Jersey would not be an exception: economists from Miami and Trinity Universities estimate the Garden State could lose up to 8,664 tipped restaurant jobs if it eliminates the tip credit. They also project tipped employees could lose up to $38 million in earnings statewide – that amounts to up to $2,300 lost annually for tipped workers’ families.
Local lawmakers should listen to their constituent tipped workers about how eliminating the current tipping system could devastate New Jersey’s restaurants and employees.