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[Important Update] What Restaurant Owners Need to Know About New Tipping Laws in Pennsylvania and New Jersey

It seems tipping laws are constantly in flux — and we have yet another update for you. 

If you own restaurants in Pennsylvania or New Jersey, your state legislators have introduced several new laws that aim to protect servers, especially when it comes to tips. Take a look at these important new tipping regulations (and see how digital tipping technology can help you stay in compliance with the law).

Tips are the property of employees only 

Have you been saving money by passing on the cost of credit card transaction fees to your tipped employees? This new rule might disrupt your business practices. 

Both New Jersey and Pennsylvania have joined California, Maine, and Massachusetts in banning the practice of deducting credit card service fees from employees’ tips. Their state legislators clarified that tips belong only to employees — and therefore, cannot be garnished to cover credit card transaction fees. 

New Jersey took it a step further, stating that employers may not deduct from employees’ tips for any reason. This includes:

  • Cash register shortages
  • Damaged or lost employer property 
  • Purchasing uniforms 
  • Any required tools or other items necessary for employment

Changes to the Tip Credit 

New Jersey and Pennsylvania are also aiming to increase earnings for tipped employees, which means changes to the tip credit. Here’s a quick rundown of how it works in each state. 

New Jersey’s minimum wage for tipped employees and the maximum tip credit will incrementally increase through 2024, ultimately resulting in an overall increase in employee compensation. Minimum tipped employee wages will reach $5.13 per hour, and the tip credit will rise to $9.87 per hour. These incremental changes will ensure that tipped employees earn at least $15 per hour — on par with New Jersey’s minimum wage requirements. 

In Pennsylvania, the tip credit amount isn’t increasing, but restaurant owners have to meet new requirements in order to benefit from the tip credit. In the past, employers could pay tipped employees $2.83 per hour as long as employees earned at least $30 each month in tips — an undeniably low standard. Pennsylvania law now requires that employers can only take the tip credit for employees who earn at least $135 per month in tips.

 Permanent 80/20 Rule

How much time do your servers spend on side work compared to time spent on direct service? You might remember the federal “80/20” rule, which stated that employers may only take the tip credit for employees who spend no more than 20% of their work time on non-tipped activities.

On the federal level, this ruling has gone back and forth during the past few presidential administrations, so Pennsylvania took matters into their own hands by permanently instating an 80/20 rule.

Making service charges more clear for customers

If your restaurant charges significant operational fees (for example: a 10% service charge to rent a private room or 15% for parties over 10 people), your customers may confuse that service charge for an auto-gratuity tip. Often, guests think they’ve already compensated wait staff for their service — and your servers are left empty-handed. 

In New Jersey, employers are prohibited from counting these operational charges as tips (even if they are distributed among employees). Pennsylvania goes even further, and now requires that restaurants make it abundantly clear that service fees or operational charges are not tips by putting them as separate line items on receipts. This new law is designed to prevent confusion on the guests’ part that might cause them to short-change servers. 

How can Kickfin help you adjust to new rules? 

With Kickfin, you can set up guardrails to ensure that you follow federal, state, and local laws when tipping out your staff. If you were already using Kickfin’s holdback function to pass on transaction fees to your servers, adjusting to the new state laws will be as simple as changing the settings in your account. Reach out to your customer success representative with any questions. 

Not sending cashless, digital tip outs with Kickfin yet? Request a demo to see how we can help you comply with tipping regulations — and more. 

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