Pennsylvania Dept. of Labor and Industry Updates Minimum Wage Act for Tipped and Overtime Employees

By: Lewis Brisbois' Labor & Employment Team

After maintaining the same overtime regulations for more than four decades, for the second time in less than two years, the Pennsylvania Department of Labor and Industry (DLI) has updated the Pennsylvania Minimum Wage Act to expand wage protections to tipped and overtime employees. Effective August 5, 2022, the DLI revised its wage regulations regarding compensation for tipped and salaried employees with fluctuating schedules who work overtime.

The updated legislation also affects several areas of concern for tipped workers. Tipped employees must now earn $135 per month before their employer is permitted to reduce an employee’s hourly pay from the minimum wage of $7.25 per hour to $2.83 per hour. An employer must then pay the difference in wages only if the tips and $2.83 rate do not reach Pennsylvania’s regular minimum wage of $7.25 per hour, commonly known as a “tip credit.” Notably, this new rate applies to employees who spend 80% or more of their time on duties and responsibilities that generate tips. This is a substantial increase over the Commonwealth’s previous requirement, which stated that an employee needed to earn only $30 per month before an employer could lower their hourly rate.

Employers must also be mindful that automatic service charges are not considered gratuities for tipped employees. Thus, employers may no longer deduct credit card and non-cash payment processing and transactional fees from non-cash tips. Processing fees on major credit card networks typically range between 1.5% and 3%, which were previously permitted as deductions from tip amounts. This change will effectively add more money to tipped workers’ pockets. 

Even with the enactment of the updated legislation, “tip pools” are still allowed among employees. Employers should note, though, that the new regulations clarify that such pools must typically exclude managers, supervisors, and business owners. Those managerial and supervisory employees may continue to retain tips from guests where they provide the entirety of the service, without help from other employees. In cases where employers provide staff with a higher than minimum wage-earning rate (without considering any tip credit), tip pools are permitted between both tipped and non-tipped employees.

Pennsylvania employers should ensure their payroll procedures are updated to comply with the new minimum wage rates and regulations. Lewis Brisbois’ Pennsylvania Labor & Employment attorneys are able to address questions employers may have concerning any wage related issues. For more information on this topic, contact the author of this post or visit our Labor & Employment Practice page to find an attorney in your area. You can also subscribe to this blog to receive email alerts when new posts go up.

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