Changes Coming for Workers who Rely on Tips in Pennsylvania

Pennsylvania Department of Labor & Industry (L&I) Secretary Jennifer Berrier announced the publication in the Pennsylvania Bulletin of final-form regulations that change Pennsylvania’s Minimum Wage Act rules by updating how employers pay tipped workers and ensuring that salaried employees with fluctuating schedules are appropriately compensated for overtime.

The Independent Regulatory Review Commission (IRRC) unanimously approved the final-form regulations on March 21, 2022. Attorney General Josh Shapiro’s office also approved the regulations, which will go into effect on August 5.

“The world of work has changed significantly since these regulations first went into effect in 1977, but tipped workers remain a sizeable and critical segment of Pennsylvania’s workforce. They are the only workers whose take-home pay ultimately depends on the generosity of their customers and not the obligation of their employer. This update to the Minimum Wage Act regulations aims to protect tipped workers in the 21st century and ensure consistency for employers,” Berrier said.

L&I also plans to host webinars for business owners and other stakeholders to learn about the updated regulations and ask questions. The webinars are scheduled for 10 a.m. on Tuesday, July 12, and Tuesday, July 19. Information about how to register for the webinars will be posted to L&I’s website.

The final-form regulation covers five primary areas for tipped workers, including:

  • An update to the definition of “tipped employee,” adjusted for inflation since 1977, that increases the amount in tips an employee must receive monthly from $30 to $135 before an employer can reduce an employee’s hourly wage from $7.25 per hour to as low as $2.83 per hour.
  • Alignment with new federal regulations codifying long-standing policies that govern employer tip credits to allow employers to take a tip credit under certain conditions, including that the employee spends at least 80 percent of their time on duties that directly generate tips, commonly known as the 80/20 rule.
  • Alignment with updated federal regulations that allow for tip pooling among employees but in most cases excluding managers, supervisors, and business owners.
  • A prohibition on employers deducting credit card and other non-cash payment processing transaction fees from an employee’s tip included with a credit card payment or other non-cash method of payment.
  • A requirement for employers to clarify that automatic service charges are not gratuities for tipped employees.

This final-form regulation also updates the definition of “regular rate” for salaried employees whose overtime pay is determined by the fluctuating workweek method, clarifying that for the purpose of calculating overtime the regular rate is based on a 40-hour work week.