New Jersey Proposes Phasing Out Tip Credit: What Hospitality Employers Must Prepare For
May 28, 2025
A proposed bill in the New Jersey Assembly—A5433—seeks to gradually eliminate the tip credit under the New Jersey Wage and Hour Law. If passed, this legislation would dramatically shift how hospitality employers compensate their tipped workers by requiring direct payment of the full minimum wage, regardless of tips.
Introduced in March 2025, the bill outlines a five-year phase-out plan that would:
- Reduce the allowable tip credit annually starting in 2026;
- Eliminate the tip credit entirely by 2030;
- Continue to allow tipping, but prohibit its use to offset employer wage obligations.
What Is the Tip Credit?
Currently, New Jersey law allows employers to pay a reduced cash wage to tipped employees as long as their tips make up the difference to reach the state’s minimum wage. For 2025, that means paying $5.62/hour in cash wages and using up to $9.87/hour in tips to meet the $15.49 minimum wage. A5433 would eliminate this credit, forcing employers to pay the full $15.49/hour in wages before tips are factored in.
Employer Impact
This bill has stirred significant debate. Proponents argue it will guarantee a stable income for tipped workers and reduce wage theft. Critics say it could:
- Increase labor costs for restaurants and hospitality employers;
- Lead to higher menu prices or mandatory service fees;
- Reduce take-home pay for employees who currently earn well above minimum wage through tips;
- Result in job cuts or shift reductions.
If passed, this change will place New Jersey among a small but growing group of jurisdictions eliminating the tip credit altogether.
Action Steps for Employers
Hospitality employers in New Jersey should begin planning now by:
- Assessing labor budgets and pricing strategies;
- Reviewing pay policies for compliance with evolving state wage laws;
- Communicating with employees about potential compensation structure changes.
To discuss what this bill could mean for your workforce and how to prepare for implementation, contact Sheryl Galler at sgaller@booklawllp.com or Chaim Book at cbook@booklawllp.com.
