Pennsylvania Updated Minimum Wage Regulations Take Effect This Friday

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August 4, 2022
By Friday, August 5, Pennsylvania employers must ensure their wage and hour practices comply with the updated Pennsylvania minimum wage regulations. The new regulations address compensation calculations for tipped employees and the method of calculating overtime hours for salaried, nonexempt employees. 
 
Tipped Employees 
 
Currently, the Pennsylvania’s Minimum Wage Act permits employers to reduce the hourly minimum wage of tipped employees from $7.25 per hour to $2.83 per hour, if the workers receive at least $30 in monthly tips. Starting on August 5, the $30 monthly threshold increases to $135.  
 
The new regulations more closely align with the tip pooling provisions of federal Fair Labor Standards Act (FLSA) regulations, as follows:
 
When an employer takes a tip credit, the tip pool must be limited to employees who customarily and regularly receive tips;
When an employer does not take a tip credit, the pool may include dishwashers, cooks, and other employees who do not customarily and regularly receive tips; and
Employers may not receive tips from a tip pool and may not allow supervisors and managers to receive compensation from the tip pool.
 
The new regulations also incorporate by reference the “80/20” rule found in the federal FLSA regulations. This rule addresses scenarios where tipped employees devote more than 20% of their time to non-tip-producing activities. Under this scenario, the new regulations:
 
Prohibit employers from deducting credit card processing and other fees from employee tips;
Require that employers implementing tip pools maintain records of the names and positions of the participants in the tip pool and the amounts distributed to each participant;
Clarify that service charges are distinguishable from tips; and 
Confirm that employers retain discretion in choosing the manner in which service charges are used.
 
Notably, when service charges are distributed to employees, such distributions must be included in the employees’ regular rate of pay. 
 
If employing tipped workers, employers should evaluate any necessary policy changes to comply with these new rules.  
 
Fluctuating Workweek
 
The FLSA permits employers to use a fluctuating workweek method of calculating overtime rates for salaried, nonexempt employees whose work hours vary weekly. However, in Pennsylvania, the new regulations eliminate the use of the “fluctuating workweek” for salaried, nonexempt employees. This is consistent with a 2019 Pennsylvania Supreme Court opinion abolishing the use of the fluctuating workweek.  
 
The regular rate of salaried, nonexempt employees must be calculated by adding the employees’ weekly compensation and dividing the total by 40. This calculation is different from calculating weekly compensation based only on all hours worked in a particular workweek.  Once the regular rate is calculated, employees working more than 40 hours during the workweek are entitled to overtime pay at a rate of 1.5 times their respective regular rate.   
 
If using the fluctuating workweek, employers should evaluate any necessary timekeeping changes to comply with these new rules.  
 
If you have questions about this alert and how these new rules impact your business, please contact the authors.