In August 2022, new Pennsylvania Minimum Wage Act (“PMWA”) regulations drafted by Pennsylvania Department of Labor & Industry’s (“PAL&I’s”) became effective. Two aspects of these regulations are highlighted below:
Federal and state law generally prevent management from confiscating “tips” paid by customers. Unfortunately, over the years, some restaurants and banquet halls have circumvented this rule by characterizing certain customer payments as “service charges” rather than “tips.”
The new regulation requires more transparency regarding the distinction between tips paid to the workers and service charges retained by management. Specifically, where a service charge is sought, the underlying contract, agreement, or menu must notify the customer that the extra charge “does not include a tip to be distributed to the employee who provided service to the guests.” 34 Pa. Code § 231.114(b). In addition, where a service charge exists, the bill presented to the customer “must contain separate lines for service charges and tips.” Id. at § 231.114(c).
Calculating Salaried Employees’ Overtime Pay
As previously reported in this Newsletter, the Pennsylvania Supreme Court held in Chevalier v. General Nutrition Centers, Inc., 220 A.3d. 1038 (Pa. 2019), that overtime-eligible salaried employees who work over 40 hours per week are entitled to extra overtime pay for each overtime hour calculated at 150% of the “regular rate” of pay. However, the Court did not decide how the “regular rate” should be determined.
The new regulations resolve the open question by clarifying that an overtime-eligible salaried employee’s regular rate is determined by dividing the employee’s weekly salary (plus any other remuneration) by 40. This is excellent news for Pennsylvania’s salaried workforce, since the alternative approach would have been to divide the weekly salary by the total hours worked.
Assume, for example that an employee earning an $800 weekly salary works 50 hours and, as a result, is owed 10 hours of overtime pay. Under the new regulation, the employee’s “regular rate” is $20 ($800 divided by 40) and her overtime wages total $300 ($20 X 1.5 X 10 hours). If the “regular rate” had been determined by dividing the salary by all hours worked, then the employee’s “regular rate” would be $16 ($800 divided by 50) and her overtime wages would total only $240 ($16 X 1.5 X 10 hours). --PW