Update Applicable to:
All businesses that receive tips and all businesses with salary workers in the state of Pennsylvania.

What happened?
On March 21, 2022, Pennsylvania’s Independent Regulatory Review Commission (IRRC) approved the regulation that will clarify when an employer may apply the tip credit and when tip pooling is permitted and clarifies how to calculate the base hourly rate for salaried employees for purposes of paying overtime.

What are the details?
Beginning on August 5, 2022, several new tips and overtime regulations will go into effect. Below are the key changes along with a short, detailed summary:

• 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.

• 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.”
  
  
• Tip Pooling
  Aligns with updated federal regulations that allow for tip pooling among employees but in most cases excluding managers, supervisors, and business owners.

• Credit Card Fees and the Tip Credit
  Puts in place a 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 methods of payment.

• Service Charge Disclosure to Customers
  Puts in place a requirement for employers to clarify that automatic service charges are not gratuities for tipped employees.

• Overtime Regulations
  The final-form regulation also updates the definition of “regular rate” for salaried employees whose overtime pay is determined by a fluctuating workweek, clarifying that for the purpose of calculating overtime, the “regular rate” is based on a 40-hour work week.

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.

For more information, please see the links below:

34 Pa. Code Chapter 231. Minimum Wage

Pennsylvania Department of Labor and Industry Article

Article 1 – Article 2 – Article 3

What do employers need to do?
Employers should review the links provided above and make immediate adjustments to their payroll and overtime policies to ensure they are in compliance with the new law.

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