Pennsylvania Tip Credit Law Finalized to Protect Tipped Workers

The Pennsylvania Department of Labor and Industry (“DLI”) has finalized and issued for approval a new Pennsylvania Tip Credit law to protect Pennsylvania tipped workers. See news media report here. The new Rule focuses on three areas of importance to protect tipped workers in Pennsylvania:

• Who is defined as a “tipped worker” in Pennsylvania
• Conditions under which employers can pay tipped workers using the “tip credit” and
• Tip pooling arrangements

Who is a “tipped worker?”

In general, there are two aspects to defining a “tipped worker.” The first is whether a worker is engaged in an occupation where tipping is customary. Restaurant waitstaff including servers and bartenders are examples of workers who customarily and regularly receive tips. By contrast, dishwashers, cooks and kitchen staff do not customarily and regularly receive tips. The second aspect of defining a tipped worker is the amount of tips received during a month. Under federal labor laws, the income threshold is $30 per month. In a significant divergence from federal law, the new Pennsylvania Tip Credit Law increases that threshold for Pennsylvania tipped workers to $135 a month.

Legal Requirements for Restaurants Taking a Tip Credit

Why does this matter? Employers are allowed to use a “tip credit” when paying wages if they employ workers who customarily and regularly receive tips and who meet the income threshold. Using the tip credit allows an employer to “use” part of a worker’s tips as part of the wages that must be paid. This saves an employer a lot of money in labor costs. The new Pennsylvania Rule will protect tipped workers by reducing the number of workers subject to the tip credit. Workers in Pennsylvania will now need to earn at least $135 in tips before their employer can use the tips to offset the cash wages that they owe.

Let’s look at an example. Assume Jessica works as a server in a restaurant and is paid the minimum wage of $7.25 an hour. For ease of math, let’s say Jessica works 100 hours a month and receives $200 a month in tips ($2 in tips per hour worked). If Jessica is a tipped employee, then her employer can use those $200 in tips as a tip credit to offset the minimum wage that she is owed. Instead of $7.25 an hour, her employer can pay cash of $5.25 an hour and the $2 an hour from her tips to “make up for” the remainder of the minimum wage obligation. Using Jessica’s $200 in tips allows her employer to save $200 a month in labor costs.

New Requirements for Taking a Tip Credit in Pennsylvania

On the other hand, if Jessica works as a server in Pennsylvania and only makes $100 in tips per month, under the new Pennsylvania Tip Credit law, Jessica is not considered a tipped worker, her employer cannot use the tip credit, must pay her $7.25 an hour and Jessica can keep the entirety of her tips.

As can be seen, the tip credit rules are obviously very pro-employer. Frankly, even when done correctly, the tip credit rules essentially allow employers to take worker’s tips. But, just as importantly, many employers purposely misuse the tip credit and this is one of the most common ways that employers actively commit wage theft.

If you think your employer has been misusing or abusing the tip credit rules, we encourage you to contact us for legal advice and counsel. You are entitled to the tips you earn and your employer is not allowed to steal your wages.

The new Pennsylvania Rule has other provisions protecting Pennsylvania tipped workers including:

• Tip pooling is “ok” but the lawfulness of the arrangement depends on whether the employer is using the tip credit; if the tip credit is used, then only traditionally-tipped workers can be included in the tip pool
• Tips cannot be shared with supervisors and managers
• Non-tipped work duties cannot exceed 30 minutes for a worker to be deemed a “tipped worker”
• Employer must maintain exacting records when they have a tip pooling arrangement
• Employer cannot deduct credit card processing and other fees from employee tips
• Notice to customer requirements are now imposed for banquets, special functions and package deals that involve mandatory service or other charges that are not given wholly to workers

Call the Employee Rights Attorneys at Herrmann Law Today

For more information, call the Employee Rights attorneys at Herrmann Law. If you think that your employer has violated your rights as an employee, call us. We are proven, experienced, employee-focused attorneys representing workers across the United States in all types of workplace disputes. Use our Online Contact page or call us at (817) 479-9229. We are more than just a law firm for employees – we are an employee’s fiercest advocate, equipping employees with the legal representation needed to achieve the best result possible.