An Assembly bill that would gradually eliminate the current tip credits used by employers toward compliance with the state’s minimum wage requirements is encountering opposition from both employers and workers.
An overflow crowd was on hand in Trenton April 10 for a hearing on the legislation, whose eventual elimination of the credit would require employers to pay workers who get tips the legal full minimum wage while allowing employees to maintain the full benefit of their tips.
The way the current arrangement works, tipped employees can be legally paid a minimum cash wage of $5.62 an hour against the current state minimum wage of $15.49. The employer is then allowed to count up to $9.87 in what is known as the maximum tip credit toward the full minimum wage.
If there is a gap between tips received and the amount of credit needed to equal the minimum wage, the employer is responsible for paying the rest.
In essence the current law sets the minimum wage for most workers at $15.49 but allows employers a $9.87-per-hour credit against those wages if tips bring worker earnings above that level.
But employers and workers in tip-dependent jobs both voiced opposition to the bill, proposed by Assemblywoman Verlina Reynolds-Jackson (D-15, Hunterdon and Mercer counties).
They say it would lead to business closures, price increases for customers and cuts to the hospitality workforce. Some also predicted it would lead to customers tipping less or even ending tipping entirely.
Reynolds-Jackson, who did not attend the hearing, sees the bill as one about “economic justice.” She said in a statement: “Every person deserves to make a decent wage, and people should be paid fairly for the work they do.” A spokesperson said the assemblywoman was at another committee meeting that conflicted with this one.
The proposed legislation could have special impact on a tourism-dependent economy like that in Cape May County. New Jersey workforce data from the state Labor Department show that leisure and hospitality is the leading employment sector in the county. These are jobs traditionally with large percentages of tipped workers.
A Facebook post by the New Jersey Restaurant and Hospitality Association referenced the experience in Washington, D.C., where the tip credit is being phased out and some restaurants are closing, due at least in part to staffing expenses.
“We’ve seen employees lose their jobs because the labor costs have increased astronomically,” said Amanda Stone, vice president of public affairs for the association. “They’ve gone to areas outside of the district to continue being able to make a tipped wage. We’ve seen the real impact this can have right in D.C., and we can’t afford to do that here.”
Not everyone was against the legislation. Some argued that eliminating tip credits might help reduce wage theft. Peter Chen of New Jersey Policy Perspective argued in his testimony that the legislation would reduce employee abuse and wage theft, help end poverty for tipped workers and allow workers to thrive.
Countering the depiction of the D.C. experience, Chen said that research shows that “states heavily reliant on food service and hospitality (Nevada, Hawaii, California) have adopted one fair wage and continued to see restaurant growth.” Chen was alone in his support for the legislation at the hearing. He argued, “Phasing out the subminimum tipped wage will be a win for workers and businesses alike.”
But Denise Beckson of the restaurant association countered in a statement that “ending tipped wages is a recipe for disaster – it would hurt restaurant workers, owners and the general public. This is a no-win proposal that will negatively impact those it claims to want to help.”
The New Jersey Business and Industry Association’s Elissa Frank also testified against the bill, saying, “From a strictly business standpoint, another bill to burden employers with already slim margins is exactly what we don’t need in New Jersey right now.”
Assemblyman Erik Simonsen (R-1) said, “We are not California, let’s keep New Jersey working.” Simonsen spoke of the harm the legislation could do to a tourist economy like Cape May County’s and reminded the audience of the millions of dollars Cape May’s hospitality industry sends to Trenton each day.
Reynolds-Jackson said in her statement, “Today’s discussion is the start of a broader conversation as this bill makes its way through the legislative process.” There was no vote on the bill at the hearing.
Contact the reporter, Vince Conti, at vconti@cmcherald.com.
