Can an Employer Take an Employee’s Tips?

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Ty Hyderally

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Serving Montclair, NJ

Attorney at firm Hyderally & Associates, P.C.

Serving Montclair, NJ

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In New Jersey, an employer cannot take away a “tipped-employee’s” tips. Under New Jersey law, a “tipped employee” is one who “customarily and regularly receives more than $30 per month in tips.” To be considered an employee that “customarily and regularly receives” tips, the employee must receive tips, more than occasionally, though he or she does not have to be tipped constantly. Thus, waiters, bartenders, and bellhops are usually considered to be “tipped employees.” Because tips are the property of the “tipped employee,” an employer is prohibited from taking away those tips, unless the tips are being used as (1) a tip credit or (2) part of a valid tip pool.

Tipped employees in New Jersey are entitled to the minimum wage. Employers of tipped employees, however, can pay their employees a minimum of $2.13 per hour (rather than $8.44 per hour) as long as the employees are making at least $8.44 per hour with tips. That difference between $8.44 per hour and $2.13 per hour (the amount the employer does not have to pay the employee) is called the tip credit. Thus, an employer in New Jersey can claim a maximum of $6.31 per hour in tip credits.

Still, the tip credit is not an amount that can be physically taken away from an employee. Even if an employee makes a lot more per hour than the minimum wage, an employer cannot take away any of that employee’s actual tips earned. As an example, if an employee makes $4.00 per hour in tips, the employer has to pay that employee the minimum $2.13 per hour and an additional $2.31 per hour, which adds up to the minimum $8.44 per hour with tips. In this case, the employer is taking a tip credit of $4.00 per hour (the amount that the employer does not have to pay the employee). But, if the employee makes $10.00 an hour in tips, the employer must still pay the minimum $2.13 per hour, taking the full $6.31 per hour tip credit, and the employee keeps the $10.00 per hour in tips plus the $2.13 per hour. Importantly, employers must give tipped employees notice if they intend to use a tip credit.  

A tip pool is an arrangement in which all of the tipped employees collectively share from everyone’s tips. Employees in a tip pool pay a part of their tips into the pool, which are then divided among all of the members of the pool. However, employers can only require tipped employees to contribute tips once that tipped employee receives the full minimum wage. Thus, in the situation noted above, in which the employee made $10.00 per hour in tips, or $12.13 per hour total, that employee could contribute $3.69 per hour into a valid tip pool ($12.13 per hour – $8.44 per hour). 

Only employees who regularly receive tips can be part of the pool. In a restaurant, for example, bartenders and waiters can be part of a tip pool, but managers and chefs cannot join. Importantly, employers can never be a part of a tip pool. In addition, employees must receive notice of the tip pool.

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