Last week, the PA Department of Labor and Industry submitted final-form regulations that update rules on how employers pay tipped workers. The department has submitted its proposal to the Independent Regulatory Review Commission in advance of its March 21 meeting, where the new rules must be considered and possibly approved.
In December, the PA Chamber submitted comments to the department reflecting its disappointment in the timing of the proposed changes as many businesses are still reeling from the effects of the pandemic and subsequent shutdown orders. Although the PA Chamber and a coalition of other organizations requested an extension to the public comment period, it was denied without reason. In its remarks, the PA Chamber also offered guidance to minimize costs and disruptions to Pennsylvania businesses.
Under federal and state minimum wage laws, employers may pay tipped workers a lower base rate – $2.83 in Pennsylvania – known as taking the tip credit, but are required to ensure employees earn the regular rate of $7.25 an hour after tips. Surveys have shown many tipped workers earn well above the regular minimum wage.
The department’s final-form regulation released last week covers five primary areas for tipped workers, including the following.
Updates to the definition of “tipped employee,” adjusted for inflation since 1977, increasing the amount in tips an employee must receive monthly from $30 to $135 before an employer can pay the tipped worker rate.
Aligns with a recent proposed federal regulatory update governing employer tip credits to allow employers to take a tip credit only when they spend at least 80 percent of their time on duties that directly generate tips, commonly known as the ’80-20′ rule.
Aligns with a recent federal regulatory update that allows for tip pooling among employees but, in most cases, excludes managers, supervisors, and business owners.
Bans employers from deducting credit card and other processing transaction fees from an employee’s tip left with a credit card or other non-cash method of payment.
Requires employers to clarify that automatic service charges are not gratuities for tipped employees.
The department’s final-form regulation also updates the definition of “regular rate” for salaried employees whose overtime pay is determined by the fluctuating work week method, clarifying that to calculate overtime, the regular rate is based on a 40-hour work week.
The PA Chamber is still reviewing the final rule.