Pennsylvania’s tipped minimum wage is $2.83 per hour in direct cash wages, with the employer allowed to count up to $4.42 per hour in customer tips toward the state’s full $7.25 minimum wage. If tips in a given pay period don’t close that gap, the employer owes the difference. Both figures have held steady since 2009.1Commonwealth of Pennsylvania. Overtime and Tipped Worker Rules in PA
How the $2.83 Cash Wage and Tip Credit Fit Together
The $4.42 gap between $2.83 and $7.25 is the tip credit. An employer claiming it pays the $2.83 base and relies on the worker’s tips to cover the rest. Every pay period stands on its own. There is no averaging of busy weeks against slow ones. If tips plus the $2.83 base don’t reach $7.25 for every hour worked in a given pay period, the employer must pay the shortfall in cash.1Commonwealth of Pennsylvania. Overtime and Tipped Worker Rules in PA
Before an employer can take the credit at all, federal law requires advance notice to the worker. The notice must state the cash wage being paid, the amount claimed as a tip credit, and that the employee keeps all tips except through a valid tip pool. Skip that notice and the credit is forfeited; the worker is owed the full $7.25 for every hour.2U.S. Department of Labor. Fact Sheet 15 – Tipped Employees Under the Fair Labor Standards Act
Who Counts as a Tipped Employee
Pennsylvania raised its monthly tip threshold in 2022. A worker must earn at least $135 in tips in a calendar month before an employer may apply the tip credit to that worker’s pay.1Commonwealth of Pennsylvania. Overtime and Tipped Worker Rules in PA That replaced a $30 standard that had been in place since 1977.
Anyone below the $135 monthly figure must be paid the full $7.25 with no credit applied. Eligibility can shift month to month, so a counter attendant or seasonal valet who hits the threshold in July may fall below it in November. Employers have to track tip totals closely enough to catch that change.
Overtime for Tipped Workers
Tipped workers earn overtime after 40 hours in a workweek. The calculation trips up employers constantly, because overtime is based on the full $7.25 minimum wage, not the $2.83 cash rate.
Multiply $7.25 by 1.5 to get $10.88 per overtime hour. Subtract the $4.42 tip credit. The employer owes at least $6.46 per hour in direct cash wages for overtime hours, with tips covering the balance.3U.S. Department of Labor. FLSA Overtime Calculator Advisor The tip credit claimed during overtime cannot exceed the credit taken during straight time.
The common mistake is multiplying $2.83 by 1.5 and arriving at $4.25. That shortchanges the worker by more than $2 per overtime hour and exposes the business to back-pay claims.
Tip Pooling Rules
Pennsylvania permits tip pools where workers combine gratuities for redistribution. When the employer is taking the tip credit, the pool is restricted to employees who customarily receive tips: servers, bartenders, hosts, bussers. Managers, supervisors, and owners cannot share in a tip pool under any circumstances.1Commonwealth of Pennsylvania. Overtime and Tipped Worker Rules in PA
An employer who pays the full $7.25 cash wage to everyone and takes no tip credit can expand the pool to include back-of-house workers like cooks and dishwashers.1Commonwealth of Pennsylvania. Overtime and Tipped Worker Rules in PA Workers in the pool must be told about the arrangement and the contribution amounts in advance.
Side Work and Non-Tipped Duties
Tipped workers often spend part of a shift rolling silverware, restocking, or cleaning. A federal appeals court struck down the Department of Labor’s 20 percent cap on such duties in 2024, and the DOL restored its earlier, less restrictive rule.4U.S. Department of Labor. Tip Regulations Under the Fair Labor Standards Act
The current rule lets an employer claim the tip credit for related side work performed alongside or immediately before or after tipped duties. Work unrelated to the tipped job, such as painting walls or cleaning bathrooms, is never covered by the credit. Pennsylvania’s recordkeeping rules require employers to track hours in tipped and non-tipped occupations separately for each worker.5Cornell Law Institute. Pennsylvania Code 34 Pa. Code 231.34 – Tipped Employees
Credit Card Fees Cannot Be Deducted From Tips
Pennsylvania bars employers from deducting credit card processing fees from a worker’s tips. A $20 tip left on a card arrives at the worker as $20, even if the processor charges the restaurant 3 percent. The employer absorbs the fee. The rule applies to individual tips and to amounts flowing through a tip pool.6Cornell Law Institute. Pennsylvania Code 34 Pa. Code 231.113 – Credit Card and Other Processing Fees This is stronger than federal law, which generally lets employers pass the proportional fee through.
Service Charges Are Not Tips
A mandatory charge, like an automatic 18 or 20 percent added to a large-party bill, is a service charge, not a tip. The IRS draws the line at voluntariness: a tip is something the customer freely chooses to leave in whatever amount they decide.7Internal Revenue Service. Tips Versus Service Charges – How to Report
Service charges belong to the business. Management decides how much, if any, is passed to staff, and anything distributed is treated as regular wages subject to normal payroll withholding. Service charge payments also cannot count toward the tip credit, so they do not reduce the employer’s $7.25 minimum wage obligation.7Internal Revenue Service. Tips Versus Service Charges – How to Report A customer who wants to be sure the server receives the money has to leave a separate voluntary tip on top of the service charge.
Records Employers Must Keep
Pennsylvania requires payroll records for at least three years from the date of the last entry, covering each worker’s hours, pay rate, straight-time and overtime earnings, and deductions.8Commonwealth of Pennsylvania. Regulations for Minimum Wage – 34 Pa. Code 231.31
For tipped employees, the records go further. The employer must identify which workers are paid under the tip credit, log the weekly or monthly tips each worker reports, and document the dollar amount of tip credit claimed per hour. Tip pool records must show the names, positions, and amounts distributed to each participant. When the tip credit amount changes from one week to the next, the worker must be notified in writing.5Cornell Law Institute. Pennsylvania Code 34 Pa. Code 231.34 – Tipped Employees In a wage dispute, gaps in the records tend to be resolved against the employer.
What a Worker Can Recover for Violations
A worker who was denied shortfall makeup pay, had tips siphoned into an illegal pool, or saw credit card fees skimmed from gratuities has options under both state and federal law.
Under Pennsylvania’s Wage Payment and Collection Law, wages unpaid for 30 days past the scheduled payday can trigger liquidated damages of 25 percent of the amount due or $500, whichever is greater. A 10 percent penalty applies if the employer fails to respond to a formal wage claim filed with the Department of Labor and Industry.
Federal law adds another layer. Under the Fair Labor Standards Act, employees can recover unpaid minimum wages plus an equal amount in liquidated damages, which effectively doubles the recovery. The statute of limitations is two years for standard violations and three years for willful ones. State and federal claims can stack, so a worker pursuing both may recover more than the back wages alone.