Last Monday, the five-member Independent Regulatory Review Commission voted unanimously to approve Pennsylvania Department of Labor & Industry regulations related to employees who earn the “tipped minimum wage,” including many restaurant servers. The new rules could take effect in the coming months but must first be approved by Attorney General Josh Shapiro and then published in the Pennsylvania Bulletin, after which they would take effect in 90 days.

The regulations would update specific rules that dictate when employers may take the “tip credit” for employees who receive tips as part of their wages. Employers in Pennsylvania must pay tipped workers at least $2.83 an hour and must make up the difference if this base rate plus tips do not amount to at least the regular minimum wage of $7.25. Yet, surveys have shown that many tipped workers earn well above $7.25.

The regulation 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 recently 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.

Some recommendations by the PA Chamber were incorporated into the final rules, including better aligning state rules with the comparable federal rule to help employers avoid compliance complications, agreeing to conduct outreach sessions before the rules take effect and publishing educational information on its website. The Department also extended the effective date from 60 to 90 days to provide an additional month to educate the public. The rule does not require employers to complete any additional forms or reports.

The regulation also includes an unrelated update to the definition of “regular rate” for salaried employees whose overtime pay is determined by the fluctuating workweek method, clarifying that the regular rate is based on a 40-hour workweek to calculate overtime. The PA Chamber continues to work with the Department as they implement this update.