Updated Rules in Pennsylvania
Tipped Worker Rules Now in Effect
As of August 5, 2022, updated rules affecting tipped workers and salaried workers who work a fluctuating work week schedule are in effect. A summary of these regulations can be found below or by accessing our Updated Regulations Presentation. The Minimum Wage Act Regulations can be found on the Pennsylvania Bulletin website at 34 Pa. Code Chapter 231. Minimum Wage.
Credit Card and Other Payment Processing Fees
- All tips and gratuities paid by credit card or other non-cash method of payment are the property of the employee receiving them.
- Employers are prohibited from deducting any credit card or other payment processing fees from employees' tips.
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 the state minimum wage or higher, tip pools may include both tipped and non-tipped employees.
- Managers, supervisors, or employers are prohibited from receiving tips from a tip pool, though they may choose to contribute tips they earned to the tip pool.
- Managers, supervisors, or 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.
Definition of Tipped Employee
- For an employer to take a tip credit for an employee's base hourly wage, the employee must earn at least $135 in tips per month.
- Employers are required to ensure that the base hourly wage plus tips equals 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) equal at least $7.25 per hour.
80/20 Rule
- An employee for whom an employer takes a tip credit cannot spend more than 20 percent of their weekly working hours on duties that do not 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 the meal service, making recommendations, processing payments.
- Duties that do not generate tips but that are directly related to duties that generate tips include (but are not limited to) preparing tabletop condiments, wrapping silverware, refilling napkin holders. Note: these tasks may be directly related if done for an existing customer.
- Duties that do not generate tips and are not directly related to duties that generate tips include (but are not limited to) painting, taking inventory of backroom supplies, ordering supplies, scheduling, cleaning bathrooms.
Service Fees
- Providers of banquets, special function, or package deals must provide patrons with contracts and/or bills with separate lines for automatic administrative or service fees that cover operational costs and for gratuities or tips intended by the patron to go to the employee who provided service.
- 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.
Tipped Work FAQs
Credit Card Deduction
No. No credit card or other non-cash transaction fees can be deducted from the tips of any worker. All tips and gratuities paid by cash, credit card, or other non-cash method of payment are the property of the employee receiving them.
No. No credit card or other non-cash transaction fees can be deducted from the tips of any worker. All tips and gratuities paid by cash, credit card, or other non-cash method of payment are the property of the employee receiving them.
Tip Pooling
PA’s regulations allow for two types of tips:
- Tip pools including employees who are paid a minimum wage lower than $7.25 per hour may only include employees who customarily and regularly receive tips.
- If all employees are paid at least the state minimum wage of $7.25 or higher, tip pools may include both tipped and non-tipped employees.
Managers, supervisors, or employers are prohibited from receiving tips from a tip pool, though they may choose to contribute tips they earned to the tip pool.
Managers and supervisors are employees who meet the duties of an executive according to USDOL FLSA regulations.
Managers, supervisors, or employers can only receive tips from patrons if they provide the entire service on their own, 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.
Yes, managers and supervisors can contribute to a tip pool, however, once contributed only tipped employees may draw tips from a tip pool.
No, managers and supervisors cannot take any portion of the tip pool.
Definition of Tipped Employee
A tipped employee is someone who performs work that customarily and regularly receives more than $135 a month in tips.
For an employer to take a tip credit for an employee’s base hourly wage, the employee must earn at least $135 in tips per month and the employer must ensure that the base hourly wage and tips add up to be at least $7.25 per hour.
If a tipped employee earns less than $7.25 per hour, including their base hourly wage plus tips, the employer must make up the difference so that their hourly earnings (base hourly wage plus tips) equal at least $7.25 per hour.
Service Fees
Businesses that provide banquets, special function, or package deals must provide patrons with contracts and menus with a statement that explains that services fees are not gratuities. Affected businesses will also have to provide bills with separate lines for automatic administrative or service fees that cover operational costs and for gratuities or tips intended by the patron to go to the employee who provided service.
No. Only businesses that provide banquets, special functions, or package deals must provide patrons with contracts and menus with a statement that explains that services fees are not gratuities as well as provide bills with separate lines for service fees and for gratuities or tips intended by the patron to go to the employee who provided service.
80/20 Rule
If an employer takes a tip credit and an employee performs work that does not directly generate tips for more that 20 percent of their work week, the employer must pay the employee $7.25 per hour for all time spent performing non-tip-generating work beyond the 20 percent threshold.
For example, if an employee works forty hours one week and spends ten of those hours performing non-tip-generating duties, or 25% of their time, the employer must not take a tip credit and instead pay $7.25 per hour for the 5% of time spent performing non-tip-generating duties beyond the 20 percent threshold, in this case that 5% equals two hours of work.
If an employee works more than 40 hours in a workweek they must be paid 1.5 times their base rate for all hours worked beyond 40 hours.
In addition, an employer may not take a tip credit for any work that does not either directly generate tips or support work that directly generates tips.
An employer can take a tip credit for the time a tipped employee spends performing directly supporting tip-producing work provided that the employee does not perform that work for more than 20% of their work week.
Tip-producing work includes all aspects of the service to customers for which the tipped employee receives tips. Examples of tip-producing work include, but are not limited to:
- a server's tip-producing work includes providing table service, such as taking orders, making recommendations, and serving food and drink.
- A bartender's tip-producing work includes making and serving drinks, talking to customers at the bar and, if the bar includes food service, serving food to customers.
- A nail technician's tip-producing work includes performing manicures and pedicures and assisting the patron to select the type of service.
- A busser's tip-producing work includes assisting servers with their tip-producing work for customers, such as table service, including filling water glasses, clearing dishes from tables, fetching and delivering items to and from tables, and bussing tables, including changing linens and setting tables.
- A parking attendant's tip-producing work includes parking and retrieving cars and moving cars in order to retrieve a car at the request of customer.
- A service bartender's tip-producing work includes preparing drinks for table service. A hotel housekeeper's tip-producing work includes cleaning hotel rooms.
- A hotel bellhop's tip-producing work includes assisting customers with their luggage.
- The tip-producing work of a tipped employee who both prepares and serves food to customers, such as a counterperson, includes preparing and serving food.
Directly supporting tip-producing work is work that prepares for or assists tip-producing work. Examples of directly supporting work include, but are not limited to the following:
- A server's directly supporting work includes dining room prep work, such as refilling salt and pepper shakers and ketchup bottles, rolling silverware, folding napkins, sweeping or vacuuming under tables in the dining area, and setting and bussing tables.
- A busser's directly supporting work includes pre- and post-table service prep work such as folding napkins and rolling silverware, stocking the busser station, and vacuuming the dining room, as well as wiping down soda machines, ice dispensers, food warmers, and other equipment in the service alley.
- A bartender's directly supporting work includes work such as slicing and pitting fruit for drinks, wiping down the bar or tables in the bar area, cleaning bar glasses, arranging bottles in the bar, fetching liquor and supplies, vacuuming under tables in the bar area, cleaning ice coolers and bar mats, making drink mixes, and filling up dispensers with drink mixes.
- A nail technician's directly supporting work includes cleaning pedicure baths between customers, cleaning and sterilizing private salon rooms between customers, and cleaning tools and the floor of the salon.
- A parking attendant's directly supporting work includes cleaning the valet stand and parking area and moving cars around the parking lot or garage to facilitate the parking of patrons' cars.
- A bartender's directly supporting work includes slicing and pitting fruit for drinks, cleaning bar glasses, arranging bottles, and fetching liquor or supplies.
- A hotel housekeeper's directly supporting work includes stocking the housekeeping cart.
- A hotel bellhop's directly supporting work includes rearranging the luggage storage area and maintaining clean lobbies and entrance areas of the hotel.
The following examples illustrate work that is not part of the tipped occupation because the work does not provide service to customers for which tipped employees receive tips, and does not directly support tip-producing work. This list is illustrative and is not exhaustive.
- Preparing food, including salads, and cleaning the kitchen or bathrooms, is not part of the tipped occupation of a server.
- Cleaning the dining room or bathroom is not part of the tipped occupation of a bartender.
- Ordering supplies for the salon is not part of the tipped occupation of a nail technician.
- Servicing vehicles is not part of the tipped occupation of a parking attendant.
- Cleaning the dining room and bathrooms is not part of the tipped occupation of a service bartender.
- Cleaning non-residential parts of a hotel, such as the exercise room, restaurant, and meeting rooms, is not part of the tipped occupation of a hotel housekeeper.
- Cleaning the kitchen or bathrooms is not part of the tipped occupation of a busser.
- Retrieving room service trays from guest rooms is not part of the tipped occupation of a hotel bellhop.
Review more specific examples and calculations in the sections below.
Meet Sofia, who works as a nail technician and works 40 hours a week (eight hours a day, five days a week) at a salon.
Tip-producing work: Sofia’s tip-producing work includes giving manicures and pedicures and assisting her patrons to select the type of service.
Directly supporting work: Between customers, Sofia cleans pedicure baths, her tools, and the floor of the salon. Sofia performs these tasks for no more than five hours per week.
Question:
When can Sofia’s employer take a partial credit for the tips that Sofia receives against the payment of the full minimum wage and when must the employer pay a direct cash wage at least equal to the full minimum wage?
Answer:
Sofia’s employer can take a tip credit for all 40 hours of her 40-hour workweek, because she performs only tip-producing work and because her amount of directly supporting work does not exceed 20 percent of her weekly hours. (20% of 40 hours = 8 hours). If the employer takes a tip credit, it must pay Sofia not less than $2.83 per hour in cash wages; with tips, Sofia must still make at least the minimum wage of $7.25 per hour. If Sofia’s hourly earnings of cash wages ($2.83 per hour or more) plus tips does not equal $7.25 per hour, her employer must make up the difference so that her hourly earnings equal at least $7.25 per hour.
Meet Issa, who works as a bellhop and works 35 hours a week (seven hours a day, five days a week) at a hotel.
Tip-producing work: Issa’s tip-producing work includes assisting guests with their luggage.
Directly supporting work: Between assisting guests, Issa rearranges the luggage storage area and keeps the lobby and entrance area of the hotel clean. Issa performs these tasks for no more than five hours per week.
Work that is neither tip-producing nor directly supporting: The employer directs Issa to retrieve food trays from outside guest rooms throughout the hotel at the end of each bellhop shift. Issa spends 2.5 hours per week performing this task.
Question:
When can Issa’s employer take a partial credit for the tips that Issa receives against the payment of full minimum wage and when must the employer pay a direct cash wage at least equal to the full minimum wage?
Answer:
Issa is engaged in a tipped occupation when she is working as a bellhop. The employer can take a tip credit for 32.5 hours of Issa’s 35-hour workweek, because she performs the tip-producing work of assisting guests with luggage and because her amount of directly supporting work does not exceed 20 percent of her weekly hours (20% of 32.5 hours = 6.5 hours) in which Issa is engaged in a tipped occupation. Issa was not engaged in the tipped occupation of a bellhop when performing the work of retrieving trays from guest rooms, so Issa’s employer must pay a direct cash wage at least equal to the minimum wage for the 2.5 hours when she performs that work.
Meet Janet, who works as a bartender and works 40 hours a week (eight hours a day, five days a week) at a pub.
Tip-producing work: Janet’s tip-producing work includes making and serving drinks, talking and serving food to customers at the bar, keeping the bar organized as she prepares drinks, and wiping down the surface of the bar where customers are sitting.
Directly supporting work: For 90 minutes at the start of her shift and 90 minutes after the pub closes each night, Janet slices and pits fruit for drinks for the next day’s service, wipes down the bar and tables in the bar area, cleans bar glasses, arranges bottles in the bar, retrieves liquor and supplies, cleans ice coolers and bar mats, makes drink mixes, and vacuums under the tables in the bar area.
Question:
When can Janet’s employer take a partial credit for the tips that Janet receives against the payment of the full minimum wage and when must the employer pay a direct cash wage at least equal to the full minimum wage?
Answer:
Once Janet performs non-tipped directly supporting work for more than 20% of her work week (20% of 40 hours = 8 hours), she is no longer engaged in her tipped occupation. Her employer must pay her a direct cash wage equal to at least the minimum wage for the time spent performing non-tip generating duties over the eight hours mark, therefore Janet gets paid the full minimum wage for seven hours total per work week (15 hours of non-tipped directly supporting work – the eight hours that are the 20% threshold = 7 hours of time she must be paid the full minimum wage). Janet’s employer can take a tip credit for the remaining 33 hours of her 40-hour workweek, because she performs only tip-producing work and 20 percent of directly supporting work during those hours.
Meet Miguel, who works as a server and works 30 hours a week (five hours a day, six days a week) at a restaurant.
Tip-producing work: Miguel’s tip-producing work includes taking orders, making menu recommendations, serving food and drink, attending to customer spills, processing credit card and cash payments, and removing items on the table during the meal service.
Directly supporting work: Miguel also refills salt and pepper shakers and condiment bottles, rolls silverware, folds napkins, and vacuums under tables in the dining area. Miguel performs these tasks for 30 minutes before and after his server shift, and sometimes during lulls in the table service, totaling nine hours per week.
Question:
When can Miguel’s employer take a partial credit for the tips that Miguel receives against the payment of the full minimum wage and when must the employer pay a direct cash wage at least equal to the full minimum wage?
Answer:
Since Miguel performs directly supporting work for nine hours per week, which is more than 20 percent (20% of 30 hours = 6 hours) of that part of the workweek in which Miguel is engaged in a tipped occupation, his employer must pay him a direct cash wage equal to at least the minimum wage for three hours of directly supporting work. Miguel’s employer can take a tip credit for 27 hours of Miguel’s 30-hour workweek.
Overtime FAQs
Examples of Overtime Pay Calculations for Employees Who Work a Fluctuating Work Week
The regular rate for salaried employees who are not exempt from overtime is all remuneration paid to the employee divided by 40 hours.
1. To calculate the employee's regular rate, divide their weekly salary by a forty-hour workweek:
- (Weekly remuneration)/(40 Hours)= Regular rate
- ($1,000 ÷ 40) = $25.00
2. To find their overtime pay, multiply their regular rate by the hours of overtime they worked and then by time and one-half.
- (Regular rate) x (Hours of overtime) x (Time and one-half) = Overtime pay
- $25 x 10 x 1.5 = $375 overtime pay.
3. Add their weekly salary to their overtime pay
- $1,000 + $375 = $1,375.
The employee is owed $1,375 for that week of pay including their $1,000 weekly salary plus $375 in overtime pay for the ten hours of overtime they worked.
The regular rate for salaried employees who are not exempt from overtime is all remuneration paid to the employee divided by 40 hours.
1. Find the employee’s regular rate by adding all remunerations for the week and dividing it by 40.
- (Weekly remuneration)/(40 Hours)= Regular rate
- ($1,000 weekly salary + $500 commissions)/40 = $37.50.
2. To find their overtime pay, multiply their regular rate by the hours of overtime they worked and then by time and one-half.
- (Regular rate) x (Hours of overtime) x (Time and one-half) = Overtime pay
- ($37.50) x (10) x (1.5) = $562.50.
3. Add their weekly salary to their commissions and overtime pay
- (Salary) + (Commissions) + (Overtime pay) = total compensation
- $1,000 + $500 + $562.50 = $2,062.50.
The employee is owed $2,062.50 for that week of pay including their $1,000 weekly salary, $500 in commissions, and $562.50 overtime pay.
Question:
A nonexempt employee is paid a salary of $1,000 per week. Over a 4‐week period, the employee worked 40, 50, 44, and 46 hours. At the end of that 4‐week period, it was determined that the employee earned a variable production bonus of $200 across the entire 4‐week period. The bonus is paid at the end of the 4-week period. What is the employee’s regular rate each week, what is their overtime pay for each week, and what is their total pay for each week?
Please note, the variable production bonus affects the regular rate of the 4th week because that is the week the bonus is paid.
Week 1: 40 Hours Worked
- Regular Rate: $1,000 weekly salary / 40 hours = $25 per hour
- Overtime Pay: $0.00. The employee did not work overtime this week,
- Weekly Pay: $1,000 weekly salary + $0.00 overtime pay = $1,000
Week 2: 50 Hours Worked
- Regular Rate: $1,000 weekly salary / 40 hours = $25 per hour
- Overtime Pay: $25 Regular Rate x 10 Hours of Overtime x 1.5 (time and one-half) = $375 Overtime Pay
- Weekly Pay: $1,000 weekly salary + $375 overtime pay = $1,375 weekly pay
Week 3: 44 Hours Worked
- Regular Rate: $1,000 weekly salary / 40 hours = $25 per hour
- Overtime Pay: $25 regular rate x 4 hours of overtime x 1.5 (time and one-half) = $150 Overtime Pay
- Weekly Pay: $1,000 weekly salary + $150 overtime pay = $1,150 weekly pay
Week 4: 46 Hours Worked. All remunerations must be considered during the week that the remuneration is paid.
Regular Rate:
$1,000 weekly salary + $200 variable bonus = $1,200
$1,200 weekly pay / 40 hours = $30 per hour
Overtime Pay: $30 regular rate x 6 hours of overtime x 1.5 (time and one-half) = $270
Weekly Pay: $1,000 weekly salary + $200 variable bonus + $270 overtime pay = $1,470
All remunerations must be considered during the week that the remuneration is paid.
It depends on how the employer structures the 10% production bonus of the employee’s salary.
Option 1: If an employer structures the bonus to be 10% of the employee’s weekly salary, then the regulations state that regular rate for salaried employees is all remuneration paid to the employee in the workweek divided by 40 hours.
- $550 salary + $206.25 overtime pay = $756.25
Option 2: But if bonus is structured to be a percentage of salary plus overtime, then
- $500 salary + $187.50 overtime pay = $687.50
- $687.50 x 10% production bonus = $68.75
- $687.50 + $68.75 = $756.25
The regular rate for salaried employees who are not exempt from overtime is all remuneration paid to the employee divided by 40 hours.
1. Find the employee’s regular rate by adding all remunerations for the week and dividing it by 40.
- ($1,000 weekly salary + $16 in shift differential)/40 hours = $25.40.
2. To find their overtime pay, multiply their regular rate by the hours of overtime they worked and then by time and one-half.
- $25.40 regular rate x 10 hours of overtime x 1.5 time and one-half = $381 overtime pay.
3. Add their weekly salary to their commissions and overtime pay
- $1,000 + $16 + $381 = $1,397
The employee is owed $1,397 for that week of work, including their $1,000 weekly salary, $16 in shift differential pay, and $381 overtime pay.
Current regulations require employers to keep accurate records of the following:
- names of employees,
- occupation of employees and the hours in that occupation,
- time and day a workweek begins,
- the number of hours worked daily and weekly by employee,
- total wages during a workweek, along with overtime incurred.
Additionally, employers need to keep records of
- allowances,
- total wages paid during each pay period,
- dates of payment and pay period covered, and
- total deductions.
While the new regulations do not create additional records to be kept, employers may benefit from maintaining specific records about when tipped employees may be performing additional non-tipped duties during a pay period.
Information
The USDOL provides information on its overtime requirements.