DOL Expansive Tipped Employee Regulations for Pennsylvania

Unlike the norm that has existed under federal law and in most states for decades, tipping employees in Pennsylvania will soon have to earn more than four times as much in tips before their employers can take a tip credit and pay these employees less than the standard minimum. salary. This revision is just one of many regulatory changes proposed by Governor Tom Wolf’s administration and approved by the state’s Independent Regulatory Review Commission (IRRC) regarding tipped employees.

The settlement will be submitted to the Attorney General of Pennsylvania for legal review and, if approved, published in the Pennsylvania Bulletin and will come into effect 90 days later.

Minimum monthly tip requirement increased to $135

Since 1998, employers in Pennsylvania can pay tipped employees a base rate of $2.83 per hour if they earn at least $30 per month in tips, with the tips making up the remainder of the employee’s wages. to reach the standard minimum wage, currently $7.25. per hour. This difference is commonly referred to as a “tip credit”. The $30 level is found in both the federal Fair Labor Standards Act (FLSA) and other state laws that allow tip credit.

If a tipped employee’s base pay and tips combined do not equal at least $7.25 per hour for all hours worked, the employer must make up the difference. Under the new regulations, tipped employees will have to earn at least $135 in tips before they qualify as tipped employees for whom their employer can pay the hourly rate of $2.83. The IRRC cited the effects of inflation since the $30 tip threshold came into effect more than four decades ago as the basis for the increase. According to regulations, the $30 threshold for tips is so exceeded that most tipped employees earn at least $135 a month in tips anyway, so the IRRC does not anticipate a substantial impact on businesses with tipped employees.

Adoption of the traditional “80/20” rule

Until recently, under sub-regulatory provisions enforced by the US Department of Labor (DOL) for decades, an employer could not take tip credit for an employee who worked “dual jobs” – a traditionally tipped and one traditionally untipped – for time the employee spent on related tasks but without tip (for example, folding towels or filling dispensers) if these related tasks required more than 20% of the employee’s total workweek time. This limitation is known as the “20%” or “80/20” rule. On the other hand, an employer could take the tip for all time spent on direct tip-producing tasks (for example, take customers’ orders and serve their food), but may never tipping yourself for unrelated, non-tipping tasks (for example, Clean the bathroom).

The DOL under the former administration issued a final rule that would have eliminated the 80/20 rule, allowing an employer to take tip credit for all time spent on tip-related tasks as long as they occurred. within a “reasonable” time before. or after tipping tasks. The current DOL reversed this final rule and, in October 2021, issued a new final rule that reinstated the 80/20 rule, with one change that the time limit on related to tip activities must not exceed 20% of a tip employee’s work week Where a continuous period of time greater than 30 minutes.

As approved by the IRRC, the Pennsylvania rulebook formally adopts the 80/20 rule as it existed prior to its removal by the Trump DOL and the final rule recently enacted by the current DOL. In other words, Pennsylvania will not implement or enforce the 30-minute limit imposed by the current Federal Final Rule. Additionally, Pennsylvania will not automatically adopt future revisions to federal tipped employee regulations, citing “oscillating” federal law, politically influenced and the need for clarity and consistency in the application of the law. ‘State.

Tip pooling officially allowed

Although Pennsylvania already allows tip pooling, the IRRC noted that the state currently has no specific regulations on the subject. Under the approved regulations, Pennsylvania will formally adopt the federal tip pooling regulations published in a DOL final rule in 2021, but, again, will not automatically adopt any future federal tip pooling regulations. tips. Federal tip pooling regulations implemented a 2018 congressional amendment to the FLSA that allows tipped employees to pool tips with traditionally tipless workers, as long as the employer does not take tip credit and, instead, pays these workers a direct wage equal to or above the minimum wage.

However, employers, including managers and supervisors, are prohibited from retaining tips received by employees, whether or not the employer accepts a tip credit. Federal regulations define those who qualify as a “supervisor” or “manager”, and are therefore excluded from participation in a tip pool, in reference to the FLSA’s “duties” test for the executive exemption. On the other hand, managers or supervisors can keep or share tips that are paid directly to them by customers for a service that the supervisor or manager has personally provided.

Transaction fee deductions from tips prohibited

While FLSA regulations allow employers to reduce tips paid to employees by the amount of (but not more than) transaction fees associated with credit card payments, Pennsylvania’s approved regulations do not do not allow such fee deductions. While acknowledging that the vast majority of purchase transactions (around 70%) are now paperless and that some trade commentators have said the practice occurs regularly, in formally rejecting the practice, the IRRC relied on the explicit state statutory language, found in 43 PS § 333.103, that gratuities are the property of the employee.

Written notice required for service charges

Banquet operators, caterers, and other event businesses often impose service charges, mandatory charges imposed on patrons separate from gratuities, the latter of which are voluntarily paid by patrons to those providing services at the event. Federal and Pennsylvania laws allow employers to assess service charges, which are generally used to cover administrative costs, untipped employee wages, and other expenses. Service charges, however, cannot be used as a form of tipping to pay tip employees.

To ensure that event patrons do not inadvertently choose to forgo tipping in the mistaken belief that the service charge is for that purpose, under approved regulations, employers assessing a service charge must provide an explicit written notice to customers that the service charge is not a substitute or offset for voluntary tipping. The written disclosure may be included in the customer contract or other statement to the customer, or may be included in the menu provided to customers. When the invoice or billing statement is presented to the customer, it should include separate lines for service charge and tip.

Fluctuating work week and regular rate calculation

Although not really an issue for employees, the IRRC included in the approved settlements a formal acknowledgment of state law, as held by the Pennsylvania Supreme Court in Knight c. General Nutrition Centers., Inc.220 A.3d 1038 (Pa. 2019), that the FLSA’s fluctuating workweek compensation method does not do not apply under Pennsylvania law.

Generally, a non-exempt employee must be paid 1.5 times their regular rate for all hours in excess of 40 in a work week. A different calculation may be applied if the employee works hours that vary from week to week and receives a pre-established fixed salary intended to compensate for all the “full-time” (non-overtime) hours worked by the employee. The employer can meet the FLSA’s overtime pay requirements if, in addition to the amount of pay, the employer pays at least one-half (0.5 times) the “regular rate of pay” for all hours worked over beyond 40. The salary must remain fixed. and be sufficient to pay at least minimum wage for all hours worked, and the employer and employee must have a “clear and mutual understanding” that the wage will remain the same regardless of the hours worked each week.

Citing Pennsylvania statutory law that “[e]employees shall be paid for overtime at least one and one-half times the employee’s regular rate,” 43 PS § 333.104(c), and recognizing that states may enact more advantageous wage laws than those provided by the FLSA, Pennsylvania’s supreme law. Yard at Knight argued that the standard multiplier, 1.5 times, must be used for any overtime calculation, thus rejecting the FLSA’s method of calculating fluctuating workweek overtime pay.

Agency name change

Finally, the approved regulations will change the name of the Pennsylvania agency charged with maintaining and enforcing state labor laws from the Bureau of Labor Standards to the Bureau of Labor Law Compliance.

Pennsylvania employers should ensure they are prepared to comply with these regulations once they become active.

© 2022 Jackson LewisNational Law Review, Volume XII, Number 89