For the first time in 44 years, Pennsylvania has updated the rules affecting tipped workers and salaried workers who have fluctuating work-week schedules. These changes went into effect on Aug. 5, 2022, and a summary of these regulations can be found below.
These updates were sorely needed, not only because of the nearly half-century since they were last updated but also because of the recent oscillation of federal regulations pertaining to tipped workers and the need to clarify the definition of “regular rate” for nonexempt salaried employees for the purpose of calculating overtime. Below are some of the key changes in the definition of tipped employee and the areas of tip pooling, 80/20 rule, service fees, credit card and other payment processing fees, and "regular rate" for salaried workers on a fluctuating schedule.
Definition of Tipped Employee
Employers are required to ensure that the base hourly wage plus tips equal at least $7.25 per hour. If a tip-credited employee earns less than $7.25 per hour, including their base hourly wage plus tips, the employer must make up the difference as required by the Pennsylvania Minimum Wage Act so that their hourly earnings (base hourly wage plus tips) are equal at least $7.25 per hour.
For an employer to take a tip credit and pay an employee less than $7.25 an hour for the employee's base hourly wage, the employee must earn at least $135 in tips per month.
Tip Pooling
Tip pools, including any employee who is paid a tip-credited minimum wage (less than $7.25 per hour), may only include individuals in occupations who customarily and regularly receive tips. If all employees are paid at least $7.25 per hour (the state minimum wage) or higher, tip pools may include both tipped and nontipped employees.
However, managers, supervisors, and employers are prohibited from receiving tips from a tip pool, though they may choose to contribute the tips they earned to the tip pool. In that regard, managers, supervisors, and employers can only receive tips from patrons if they provide the entire service without assistance.
Example 1: A supervisor working at a bar takes a drink order from a patron, makes the drink, delivers the drink, and clears the table when the patron is finished. In this case, the supervisor may keep the entire tip.
Example 2: A manager in a restaurant takes food orders and refills some drinks while a tipped employee delivers food to the table and refills drinks. In this case, the manager may not keep any part of the tip.
80/20 Rule
Employees for whom an employer takes a tip credit and pays the employee less than $7.25 an hour cannot work more than 20% of hours on duties that do not directly generate tips unless the work support duties that directly generate tips.
Duties that directly generate tips include (but are not limited to) taking orders, serving food and drinks, preparing alcoholic beverages, bussing tables during meal service, making recommendations, and processing payments. Duties that do not generate tips but support duties that directly generate tips include (but are not limited to) preparing tabletop condiments, wrapping silverware, and refilling napkin holders. Duties that do not generate tips and are not supporting duties for generating tips include (but are not limited to) painting, taking inventory of backroom supplies, ordering supplies, scheduling, and cleaning bathrooms.
Credit Card and Other Payment Processing Fees
All tips and gratuities paid by credit card or other noncash methods of payment are the property of the employee receiving them. Also, Employers are prohibited from deducting any credit card or other payment processing fees from employees' tips.
Service Fees
Providers of banquets, special functions, or package deals must provide patrons with contracts and menus with a notice that clarifies service charges do not go toward the tips of the employee and can be used for administrative purposes. They must include separate lines for service charges and tips on any billing statement.
Example: A business provides banquet services and includes an 18% service charge. The bill should have separate lines for the 18% service charge and for the patron to provide a tip or gratuity if they so desire.
Regular Rate for Salaried Workers on a Fluctuating Schedule
The definition of "regular rate" for salaried employees whose overtime pay is determined by the fluctuating workweek method was clarified. For the purpose of calculating overtime, the regular rate is based on a 40-hour work week. This removes the fluctuating workweek method of calculating overtime for salaried workers.
More information on the updated rules under the Minimum Wage Act are available at the following: resources.