New PA Regulation Will Provide a Pay Bump for Some Tipped & Salaried Workers

Stephen Herzenberg |

On Monday, March 21, the Pennsylvania Independent Regulatory Review Commission voted 5-0 to enact a modest new Pennsylvania minimum age regulation (regulation #12-106: Minimum Wage) that will benefit low-paid tipped workers and some lower-paid salaried workers, as Governor Wolf outlined in a statement after the vote. KRC senior research analyst Claire Kovach’s “explainer” policy brief on the regulation from December 2021 provides additional background. This blog contains the testimony delivered by KRC economist and executive director Stephen Herzenberg at the hearing at which the five IRRC commissioners voted to approve the new regulation. The regulation will now be sent to the Office of Attorney General (OAG) and, upon OAB approval, become effective through publication in the Pennsylvania Bulletin.

“We submit these comments to express our strong support for the Department of Labor and Industry’s proposed updates to the Minimum Wage Regulations which relate to tipped employees and the calculation of overtime for salaried employees. The proposed final rule would especially benefit many of the lowest-paid workers in Pennsylvania, including those who work in the leisure and hospitality industries heavily impacted by the pandemic.

By clarifying who is a tipped worker, who can be in a tip pool, who is responsible for credit card fees, and how overtime pay is calculated for lower-paid salaried employees who receive it, the Department of Labor and Industry has taken steps to address the low pay that is common throughout a Pennsylvania economy that is highly inequitable (as documented in KRC’s annual “The State of Working Pennsylvania” report).

The changes in the new regulation are modest ones that will give lower-paid hourly and salaried workers a bit more income but impose no significant burden on employers.

Updating the tip threshold to $135 per month. The current $30-per-month threshold means employers can take a tip credit for full-time workers earning as little as 16 cents per hour in tips within a 180-hour month. Even with the new $135-per-month threshold, which takes account of inflation since 1977, employers will still be able to take a tip credit for full-time workers earning more than 75 cents per hour in tips. The new threshold will ensure that low-paid workers in industries in which tips are occasional and a small supplement to hourly wages receive a predictable paycheck each period.

Codifying court decisions that establish that Pennsylvania workers cannot be paid the tipped minimum wage unless they spend at least 80% of their workday performing tipped work. This codification should somewhat reduce the number of workers illegally paid the $2.83-per-hour tipped minimum wage.

Limiting tip pooling (the group collection and equal redistribution of tips among workers) so that owners and supervisors (i.e., who spend less than 80% of their time performing tipped work) cannot receive a share of tips. More tips, as a result, will go to lower-paid employees.

Prohibiting employers from deducting credit card processing fees from workers’ tips.

Requiring employers to inform patrons what part of a bill is a tip/gratuity that goes to the worker and what part of the bill is a service fee that goes to the employer. This will help ensure that customers that want to reward the front-line tipped worker for quality service are able to do so and do not inadvertently give a portion of their tip to the business.

Clarifying that salaried employees who are entitled to overtime wages should be paid “time-and-a-half” overtime based on their salary and other compensation divided by 40 hours. Thus, if these employees work 44 hours they would receive the equivalent of 46 hours’ worth of compensation—i.e., 15% more than if they worked only 40 hours.

By providing an additional element of fairness to lower-paid Pennsylvania workers, these changes will also benefit many employers by reducing rates of turnover and enabling businesses to reduce their number of unfilled vacancies. We applaud the Wolf administration for developing the proposed final rule and urge the IRRC to implement the rule.”