New Jersey stands at a crossroads regarding the compensation of tipped workers. Introduced on March 10, 2025, Assembly Bill A5433 proposes a significant change to the New Jersey Wage and Hour Law: phasing out the “tip credit.”

Quick Hits

• New Jersey Assembly Bill A5433 proposes a five-year phase-out of the tip credit, spanning from 2026 to 2030.
• The bill would mandate employers pay the full state minimum wage to tipped employees before the addition of tips.
• Potential consequences include increased labor expenses for businesses, higher prices for consumers, and uncertain effects on the overall income of tipped workers.

The tip credit is a legal provision allowing employers to pay tipped employees a direct cash wage below the applicable minimum wage rate, and allows employers to use a portion of the tips received by the employee to make up the difference.

This initiative has sparked intense debate about its potential consequences. Advocates claim the bill promotes fairness and worker protection, while opponents fear it will inflate business costs, drive up consumer prices, and trigger job losses within the restaurant and hospitality sectors.

Understanding the Tip Credit

Most employers in New Jersey are governed by two wage and hour laws: the federal Fair Labor Standards Act (FLSA) and the New Jersey Wage and Hour Law (NJWHL). Employers must pay their nonexempt employees the federal ($7.25) or state ($15.49) minimum wage rate, whichever is higher. Currently, both laws also...

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