In our original post, we reviewed the Pennsylvania Independent Regulatory Review Commission (IRRC) approval of proposed new regulations by Governor Tom Wolf’s administration concerning tipped employees.

Since then, the Pennsylvania Attorney General completed its review and approved the regulation. The regulation will go into effect on August 5, 2022. Below is a review of the changes the final-form of the regulation will institute for Pennsylvania employers:

  1. Who is a “tipped employee”? Updates the definition of “tipped employee,” adjusting for inflation since 1977, by increasing the amount in tips an employee must receive monthly from $30 to $135 before an employer can reduce an employee’s hourly wage from $7.25 per hour to as low as $2.83 per hour.
  2. 80/20 Rule. Aligns with federal regulations by codifying that in order for employers to take a tip credit, among other factors, the employee must spend at least 80 percent of their time on duties that directly generate tips, commonly known as the “80/20 rule.”
  3. Tip Pooling. Aligns with updated federal regulations that allow for tip pooling among employees but in most cases excluding managers, supervisors, and business owners.
  4. Credit Card Fees and the Tip Credit. Puts in placea prohibition on employers deducting credit card and other non-cash payment processing transaction fees from an employee’s tip included with a credit card payment or other non-cash method of payment.
  5. Service Charge Disclosure to Customers. Puts in a place a requirement for employers to clarify that automatic service charges are not gratuities for tipped employees.[1]

Fluctuating workweek

Additionally, this new regulation will codify the Pennsylvania Supreme Court’s holding in Chevalier. v. General Nutrition Centers, 2019 U.S. Dist. LEXIS 6521 (Pa. 2019) and will eliminate the right of Pennsylvania employers to utilize the fluctuating work week for salaried, non-exempt employees. Under the fluctuating workweek approach (permitted under federal law), the overtime premium of a salaried, non-exempt employee is paid on a half-time basis, as compared to the typical requirement that overtime premiums be paid on a time and a half basis for hourly, non-exempt employees.[2] In Chevalier, the Court held that Pennsylvania law does not permit the use of a fluctuating workweek method under the Pennsylvania Minimum Wage Act (PMWA) and the Pennsylvania Regulations. The courtclarified that the PMWA does not support the fluctuating work week method because it allows an employer to calculate overtime pay only at one half of the employee’s regular rate. The court explained that the PMWA requires employers to pay “not less than 1 ½ time the employee’s rate of pay for all hours worked in excess for 40 hours in a work week.”

Thus, the regulation formalizes the holding in Chevalier and provides more clarity for Pennsylvania employers and employees for calculating overtime.

Additionally, the Department of Labor and Industry expressed that this calculation will also be the same for hourly employees.