A Guide to Restaurant Tipping Law (For Business Owners)

Did you know that Americans are more likely to tip at local stores compared to restaurant chains?

Research has shown that 49% of Americans tip at local coffee shops around the country. This contrasts with the 27% of Americans that tip at coffee chains like Starbucks and Seattle Coffee.

If you’re a restaurant owner or work in the service industry, it’s important to understand the restaurant tipping laws in your state. This will help you stay compliant with the latest regulations.

Interested in learning more about the tipping laws in the United States? Read on for more information on restaurant tipping law.

What Are Tips?

Tips are optional payments that customers can make when they’re settling the bill. This is a general practice within the service industry to show your appreciation for their hard work. While tips are not welcome in some countries, they are standard practice in the United States.

The Average Tip in Restaurants

There are no strict rules about how much you need to tip when you’re at a restaurant or bar. However, the general rule of thumb is to add 10% to 20% of the bill as a tip. This means that if your bill is $100, you would add 10% on top of that and pay $110.

Restaurant Tipping Law

While there’s no law that makes tipping compulsory, different restaurants can have varying policies. In most cases, the restaurant will add a compulsory tip if there are more than a certain number of people at the table. This is generally for tables of six or more people.

The Tipped Minimum Wage

Restaurants and other service industries must abide by the federal minimum wage. However, there is a tipped minimum wage that businesses can implement within these industries.

If your business has tipped employees, the Fair Labor Standards Act (FLSA) states that you don’t have to abide by the federal minimum wage. Instead, you can use the tipped minimum wage.

What’s the Tipped Minimum Wage?

A tipped employee is very different from a standard employee. This is because a tipped employee can get paid a slightly different minimum wage. This is officially known as the tipped minimum wage.

If you’re going to be a tipped employee, you should make sure that it says so in your employment contract. Only if you agree to become a tipped employee, then you can get paid the tipped minimum wage.

A restaurant won’t be able to pay you the lower minimum wage if your contract doesn’t clearly state it.

What’s a Tipped Employee?

A tipped employee is a legal term that’s used to describe a career field that relies on tips in a major way. This is someone who receives at least $30 or more per month in tips. These kinds of jobs are almost exclusively in the service industry.

This includes a wide range of jobs such as restaurants, bars, hotels, and hair salons. If you qualify as a tipped employee, the employer can technically pay you the tipped minimum wage.

Minimum Wage for Tipped Employees in Restaurants

The minimum wage in the United States is $7.25 per hour. While there is much debate about increasing the minimum wage, the rate remains at $7.25 for 2023. However, some states have higher minimum wages than others.

The minimum wage in New Jersey is $14.13 per hour. This is slightly higher than the federal minimum wage. However, the minimum wage is lower for seasonal employees or small businesses with less than five employees.

The tipped minimum wage for New Jersey is $5.26 per hour. As you can see, this is significantly lower than the standard minimum wage in the state. However, it’s much higher than most other states in the US.

What Happens to Employee Tips?

When you tip an employee, have you ever wondered where the tip goes? The truth is that it depends on the restaurant that you’re in. Different restaurants have varying tipping policies.

Some restaurants may have pooled tips, while others may have direct tips. These two are the most popular options for restaurants around the country. Here’s what you need to know about both models.

Direct Tips

Direct tips are a great way to encourage your employees to perform at their best. Since they get to keep the tips that they earn, they are more motivated to go above and beyond for customers.

Cash tips are just kept at the end of the night. However, electronic tips may take some time to make their way to each employee. Electronic tips are generally calculated separately and added to your next paycheck.

Tip Pooling

Tip pooling is an approach that pools all the restaurant’s tips together. This means that all the tips go into a common pool. Regardless of how much you have made in tips, everything goes to the common pool.

When the night is over, the common pool is then divided equally. This means that you get an equal share to everyone else. This is a more equal way of dividing tips at the end of the night.

Tipping Laws in New Jersey

If you own a restaurant, it’s important to understand the latest restaurant tipping laws. This will help you ensure that you manage your employees’ tips properly. Whether you’re tip pooling or directing tips straight to individuals in your restaurant, it’s important to make sure everything is compliant.

If you or anyone you know is being impacted by the tipping laws in New Jersey, contact McOmber McOmber & Luber. We have experience in the space and can help you overcome any legal issues you may be having. Reach out to us for a free consultation today.