No Winners in Proposed Tipped Wage Changes

At Issue

By Elissa Frank, NJBIA Vice President of Government Affairs On May 29, 2025

NJBIA is opposing legislation (A-5433), which proposes significant changes to the compensation structure for tipped workers by gradually eliminating the existing “tip credit” over a six-year period. While the bill’s intent is to ensure fair wages, it raises several concerns that merit careful consideration. 

Under the tipped credit compensation model, operators pay tipped workers a base wage, on top of which they earn tips. Operators must make up the difference if the base wage and tips don’t meet the minimum wage. 

New Jersey law sets the minimum wage to $15.49 per hour for most workers but affords employers a $9.87-per-hour credit against those wages if tips bring worker earnings above that level. The bill outlines a reduction from $9.87 per hour to $1.97 by 2029, culminating in the complete removal of the tip credit in 2030.

If this change is enacted, job creators would face increased labor costs, potentially leading to higher prices for consumers or reduced hours for employees. These financial pressures could disproportionately affect small businesses and the hospitality industry – sectors that heavily rely on tipping practices. 

The bill may have unintended consequences on the tipped workers themselves. Increased labor costs might lead to automation or a reduction in staff. It’s crucial to assess whether the bill’s provisions genuinely enhance workers’ earnings or merely shift the economic burden in ways that don’t benefit intended recipients. 

The proposed changes could alter the traditional tipping system that many consumers and service workers are accustomed to. If employers adjust by increasing service charges or altering compensation structures, the direct relationship between service quality and tipping might diminish. This shift could also cause customers to tip less, as the incentive for employees to provide exceptional service may be reduced. 

Waitstaff at full-service restaurants earn a median of $27 an hour, with the highest paid tipped employees making $41.50 an hour under the tipped credit model, according to the National Restaurant Association. If the tipped credit model is eliminated, and customer tips decreased, some of the workers the bill aims to help would ultimately make less.

Before implementing such significant changes, a thorough analysis of the bill’s impact is essential. Engaging with stakeholders – including business owners, employees, economists, and consumers – can provide a more nuanced understanding of potential outcomes. A balanced approach that safeguards the interests of workers without imposing undue burdens on employers or consumers is essential.

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