In late November, PA Department of Labor & Industry Secretary Jennifer Berrier announced proposed regulations regarding tipped work and fluctuating workweek schedules in Pennsylvania. The bulk of the proposed regulations address who qualifies as a tipped worker, how tipped workers are paid, and clarify both tipped worker and employer responsibilities regarding tip pools. A separate regulation clarifies the calculation for overtime pay for those salaried employees eligible for overtime.
The final form of these new Pennsylvania minimum wage regulations will be considered at an Independent Regulatory Review Committee (IRRC) public meeting this coming Monday, March 21. It will air live here: https://pacast.com/live/irrc.
Comments are being accepted now! All interested parties can submit letters and comments to the following email address: irrc@irrc.state.pa.us. All emails received before 10 am on March 19 will be read by the commissioners before the meeting.
In a recent statement, Secretary Berrier outlined how the work world has changed significantly since these regulations were first enacted in 1977 and said this proposal to update Minimum Wage Act regulations aims to “establish robust and modernized guardrails to protect tipped workers in the 21st Century and ensure consistency for employers.”[1]
This brief covers the five primary proposed tipped worker regulation changes within the new proposed rule and the clarification of the term “regular rate” for purposes of calculating overtime pay for salaried employees.
Who Is a Tipped Worker? Clarifying the Definition
In 1977, Pennsylvania Minimum Wage Act regulations defined a tipped worker as someone earning $30 or more per month in tips. Employers could take a “tip credit” for the employee who earned $30 or more per month in tips, reducing their pay to the tipped minimum wage as long as the tips they earned brought their hourly wage up to at least the regular minimum wage. This is still the rule today. The tipped minimum wage is currently $2.83 per hour, and employers who take a tip credit for employees can pay them this hourly wage provided the tips the workers earn bring the their hourly wage up to at least the Pennsylvania minimum wage of $7.25 per hour. The current $30 threshold has remained unchanged since 1977, and one of the proposed regulation changes is to modernize this number, updating the dollar threshold to $135 per month due to inflation.[2] Under the proposed regulation change, an employer can only take a tip credit for employees earning $135 or more per month in tips. Generally, tipped workers make more than this in tips monthly, as it amounts to around $1.70 per hour in tips (assuming a 20-hour workweek)—but this regulation serves to impact workers who work in industries where tips are less reliable, seasonal, or otherwise unpredictable, ensuring that they get paid the full minimum wage if they don’t make at least $135 per month in tips.
The next regulation change codifies a rule that has long been the law in Pennsylvania, so it shouldn’t change current practice. Under this regulation, employees must spend at least 80% of their workday performing tipped work, otherwise they cannot be paid the tipped minimum wage.
Tip Pools Among Employees
Next, the department is proposing a regulation to limit tip pooling—the group collection and equal redistribution of tips among workers—to employees who spend at least 80% of their shift performing tipped duties. This rule has several effects—it eliminates owners and managers from tip pools given that they have significant influence over employees and only permits tip pools with non-tipped employees as long as the employer pays every pool participant at least the minimum wage. Workers with significant supervisory power can no longer be paid the tipped minimum wage. Employees who perform at least 80% tipped work and have minimal supervisory power (such as assigning table sections to wait staff) can still participate in a tip pool, but anyone with ownership in the business or more of a significant supervisory role is excluded.
The next regulation requires employers to notify employees if they will be part of a tip pool, and employers must keep records of tip pools and participants. This ensures that employees are aware of tip pooling arrangements before they’re required to participate and allows the Department of Labor & Industry to request tip pool records from businesses.
Credit Card Fees & Service Charges for Tips
Under this regulation change, employers would be prohibited from deducting credit card processing fees from workers’ tips. Currently, when workers are tipped on a credit card, the worker is responsible for paying the percentage of the credit card transaction fee that their tip amounts to. Under this proposed regulation change, employers would be responsible for paying the whole credit card transaction fee.
Another regulation change would require employers to inform patrons that service charges are not tips. Businesses would be required to have signage or menu language that clarifies what part of a bill is a service fee that goes to the employer and what part is a tip/gratuity that goes to the worker.
Changing the Fluctuating Workweek
The last part of these regulations involves the calculation of the “regular rate” for overtime wages paid to salaried employees who are eligible to receive overtime pay. This proposed regulation clarifies that the federal fluctuating workweek method of calculating overtime for salaried workers in Pennsylvania is illegal and salaried employees who are entitled to overtime wages would be paid their overtime based on their salary and other compensation divided by 40 hours. These employees would receive real time-and-a-half pay for working any hours over 40, based on an hourly rate equal to their salary and other compensation divided by 40.[3]
[1]Media statement on proposed regulations, https://www.media.pa.gov/Pages/Labor-and-Industry-Details.aspx?newsid=638.
[2]Inflation as measured by the CPI-U, https://www.bls.gov/cpi/data.htm.
[3] This regulatory change means the federal method of calculating overtime for salaried workers—the “fluctuating workweek method”—would be illegal in Pennsylvania. Under the fluctuating workweek method, their hourly wage (the regular rate) is calculated as their salary and other compensation divided by their actual hours worked—e.g., if they earn $1,000 per week and work 50 hours, their hourly wage (regular rate) would be $20 per hour and they would receive overtime of only $10.00 per hour for each overtime hour worked, or an additional $100 for that week. Under the Pennsylvania regulation, the same worker would receive an hourly rate of $25.00 based on the $1,000 earned that week divided by 40 hours. Thus, for each overtime hour, the worker would be paid at time and one half, or $37.50 per hour, for an additional $375.00 for those same 10 hours of overtime.