Pennsylvania: New Overtime Calculations and Wage Rules for Tipped and Salaried Nonexempt Employees


All Employers with PA Employees


August 5, 2022


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Under the Pennsylvania Minimum Wage Act (PMWA), employers must now use different calculations in order to determine the overtime pay due for salaried nonexempt employees. The new rules do not impact overtime calculations for hourly nonexempt employees. Additionally, employers have new restrictions on treatment of tipped employees. 


Salaried Nonexempt. This calculation method precludes employers from using the fluctuating work week method under the Fair Labor Standards Act (FLSA). Instead of the FLSA’s method, employers must now add up all remuneration (including weekly salary, nondiscretionary bonuses, and commissions) and divide this amount by 40 hours. That regular rate is then multiplied by 1.5 and then multiplied by the number of hours worked in excess of 40 hours in that workweek. The FLSA’s fluctuating work week method cannot lawfully be used for Pennsylvania salaried nonexempt workers under Pennsylvania case law, and the PMWA codifies that case law. 


Tipped Employees. Under current Pennsylvania law, employers can pay tipped employees as little as $2.83 an hour as long as the employees make at least $30 per month in tips. The minimum tip threshold is now increased to $135. In addition, employees must work at least 80% of the time in a role that directly generates tips. Further, tip pooling is limited to only include employees paid below the regular base minimum wage level. Managers, supervisors, and employers can only keep the tips they directly receive for work they themselves performed. Employers who include fees for administrative or service fees must indicate in writing that these fees are separate from gratuities or tips kept by employees. Additionally, employers cannot deduct credit card processing fees or other transactional fees from employee tips. 


Action Items 

  1. Review the additional guidance from the Pennsylvania Department of Labor & Industry here. 
  2. Have payroll administration procedures updated for calculating overtime.
  3. Have policies and procedures updated for distribution of tips and tip pools. 
  4. Update contracts and receipts to indicate service fees are separate from gratuities and tips paid to employees.  
  5. Have appropriate personnel trained on the new overtime calculations. 
  6. Subscribers can call our HR On-Call Hotline at (888) 378-2456 for further assistance. 

Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2022 ManagEase