Pennsylvania: Updated Tipped and Overtime Rules

Applies to:          All Employers with PA Employees

Effective:             August 5, 2022

The Pennsylvania Department of Labor and Industry (DLI) recently issued final regulations for updates to the Pennsylvania Minimum Wage Act (PMWA), including payment of wages to tipped workers and calculating overtime for salaried nonexempt employees.

Tipped Worker Wages

The updated regulations align tipped worker rules more closely with federal requirements, but differences still remain.

• The threshold to qualify as a “tipped employee” was increased to customarily and regularly receiving more than $135 per month in tips.
• Federal tip pooling requirements under 29 C.F.R. § 531.54 were incorporated into the state regulations.
• The federal 80/20 rule for tip-producing and non-tip-producing work under 29 C.F.R. § 531.56 was also largely incorporated into the state regulations.
• Employers are prohibited from deducting credit card processing fees, among others, from employee tips.
• Tip pool documentation requirements: employee names, positions, and amounts distributed.
• Service charges are distinguished from tips, including that service charges cannot be used to satisfy the tip credit.
• Employers must notify patrons that service charges are administrative fees and not tips (e.g., agreements, menus, etc.). There also must be separate lines for service charges and tips on invoices.

Salaried Nonexempt Employees

The final rule also changes overtime rules applicable to salaried nonexempt employees (SNEs).

• The fluctuating workweek method for determining overtime was eliminated for SNEs.
• The rule implements a new overtime calculation method for SNEs. The regular rate is all weekly compensation divided by 40. The overtime rate is 1.5 times the regular rate for all hours worked over 40 in the workweek.

Employers should begin preparing now for implementation later this summer.

Action Items

1. Review the final rule here.
2. Revise tipped employee pay and documentation processes.
3. Update patron agreements and invoices regarding service charges and tips.
4. Update overtime calculations for salaried nonexempt employees.
5. Have appropriate personnel trained on new pay requirements.
6. Subscribers can call our HR Hotline at (833) 268-5531 for further assistance.