Summary
Pennsylvania’s tip laws build upon federal minimum wage standards, but enforce stricter eligibility criteria for tip credit and additional protections for workers. Employers must understand who qualifies as a tipped employee, when they can claim tip credit, and how tip pooling must be managed. Noncompliance can result in lawsuits, penalties, audits, and the loss of tip credit privileges.
Key provisions:
- Under Pennsylvania law, a tip is an amount of money a customer voluntarily pays an employee in recognition of a service performed
- Employers may not deduct credit card processing fees from employee tips
- To be considered tipped employees, employees work in tipped occupations, make at least $135 in tips per month, and don’t spend more than 20% of work hours on non-tip-generating work
- Pennsylvania matches the federal minimum wage of $7.25. They may claim tip credit and pay eligible tipped employees a reduced base wage of $2.83
- Employers are allowed to enforce tip pooling arrangements even without written consent from employees, provided the pool follows state and federal labor laws
Tip laws in Pennsylvania help tipped workers receive fair compensation despite the state’s relatively low minimum wage rate. To build strong working relationships with your staff, full compliance with these laws is essential. By understanding and following Pennsylvania’s tip regulations, you can improve employee satisfaction, avoid legal issues, and keep your business running smoothly.
What is a “tip” in Pennsylvania?
Pennsylvania law defines tips as a sum of money a customer voluntarily provides an employee as a reward for good service. To qualify as a tip, the payment must meet the following criteria:
- The customer must pay the tip voluntarily, rather than paying a mandatory service charge
- The customer determines the amount
- The customer intends the payment for the employee rather than the business
Tips belong exclusively to the employee, and can come in cash, credit card, or non-cash payment forms. Employers may not withhold tips unless for redistribution under an agreed-upon tip pooling system. Additionally, they cannot deduct any fees from an employee’s tips, be it administrative fees, credit card processing fees, or other charges.
Who qualifies as a tipped employee in Pennsylvania?
Under Pennsylvania law, a tipped employee is any employee who satisfies all of the following conditions:
- Works in a job where tipping is customary and regular
- Earns at least $135 in tips per month
- Spends less than 20% of total work hours on non-tip-producing tasks (such as cleaning, restocking, or packaging)
If an employee does not meet these criteria, they are no longer considered a tipped employee and must receive the full minimum wage rather than the reduced tipped wage.
Minimum wage and tip credit
The minimum wage in Pennsylvania is $7.25 per hour, matching the federal rate. Under Pennsylvania law, employers may claim a tip credit of up to $4.42, allowing them to pay eligible tipped employees a reduced base wage of $2.83 per hour. However, tip credit may only apply if tips must bring the employee’s total hourly earnings to at least $7.25.
Pennsylvania tip credit rules
To ensure fair pay for tipped employees, Pennsylvania enforces several tip credit rules. These regulations define who qualifies as a tipped employee, explain when and how employers can apply the tip credit, and outline what employers must do if an employee’s tips fall short of full minimum wage.
By following these rules, employers can avoid wage violations and ensure compliance with state labor standards.
Employers cannot apply tip credit to employees making less than $135 in tips per month
Pennsylvania, like all states that follow the federal minimum wage, has the third-lowest minimum wage rate in the country. However, its required monthly tip threshold for tipped workers is significantly higher than the federal standard. While most states consider employees tipped workers once they earn $20 in tips in a month, Pennsylvania only classifies employees as tipped workers once they earn $135 in tips within a month.
If an employee does not meet the $135 benchmark, their employer must pay them the full minimum wage. This rule prevents employers from lowering base wages for employees with insufficient tip income, helping to ensure fair compensation for all.
Employers cannot apply tip credit to employees who break the 80/20 rule
Pennsylvania law allows employees to perform non-tip-related tasks as long as the work does not exceed 20% of total working hours. Once they break the 80/20 rule, they no longer qualify as tipped employees and must receive full minimum wage from their employers.
This rule ensures that the reduced minimum wage only applies when employees are actively engaged in tip-earning work. It prevents employers from underpaying employees who spend a significant percentage of their working hours on tasks that cannot generate tips.
Employers must make up the difference for insufficient tips
The sum of the employee’s base wage and tips must amount to at least the state minimum wage of $7.25 per hour. If the total earnings fall short, it is the employer’s responsibility to make up the difference. Failure to pay employees their full wages may result in wage theft claims, financial penalties, fines, and potential legal action against the employer.
Tip pooling in Pennsylvania
Pennsylvania law allows tip pooling, an arrangement where employees combine their tips into a shared fund and redistribute them among eligible staff within the same pay period. Employers may require participation in a tip pooling arrangement as a condition of employment as long as the pool complies with state and federal labor standards.
Pennsylvania tip pooling rules
To ensure fair distribution of tips, Pennsylvania requires employers to follow a handful of tip pooling rules. The current federal and state tip pooling rules are:
- Mandatory tip pooling is allowed: Employers may mandate tip pooling for all tipped employees, even as a condition of employment. This helps ensure a fair and consistent distribution of tips among eligible staff.
- Inform employees: While Pennsylvania law does not require written consent from employees for tip pooling, employers must still be transparent about their arrangements, including eligible participants, distribution structures, and payment schedules.
- If tip credit applies, only tipped employees may participate: Employers who claim tip credits should only include eligible tipped employees in tip pooling arrangements. This prevents employers from redistributing tips to employees who already make full minimum wage.
- Managers, supervisors, and owners cannot participate: Managers, supervisors, and owners may not participate in tip pools, even if they perform tip-related duties or the employer does not claim a tip credit. Because they have authority over employees and business operations, their participation creates a conflict of interest and can lead to unfair distribution.
Legal consequences of violating Pennsylvania tip laws
The legal consequences of violating Pennsylvania tip laws vary based on the type and severity of the offense. Penalties may include repaying unpaid wages, losing the ability to claim a tip credit, paying civil fines, and covering employees’ legal costs.
Wage theft claims
If an employer fails to pay legally owed wages, the affected employees may file wage theft claims to the state labor department, wage boards, or courts. Successful claims force the employer to pay back unpaid wages, often with interest or compensation for damages. Unlike lawsuits or civic penalties, wage theft claims are only recovering lost pay rather than enacting penalties.
Civil penalties
Employers who withhold, reduce, or improperly distribute tips may face civic penalties, which are financial punishments imposed by government agencies (such as the Department of Labor) for labor law violations. These penalties typically force employers to pay fines on top of compensating stolen wages. Typically, civic penalties result from agency investigations, complaints, or audits.
Employee lawsuits
If the offense is severe, employees individually or collectively may file a legal case against the employer. Lawsuits involve formal court proceedings and seek remedies like back pay, damages, penalties, and sometimes attorneys’ fees. They tend to be significantly more costly and time-consuming than claims and civic penalties.
Loss of tip credit
Including managers, supervisors, or owners in tip pooling arrangements violates both state and federal labor laws. This makes the tip pool invalid and requires the employer to retroactively pay all participating tipped employees the full minimum wage for the affected pay period. The employer may also be liable for liquidated damages.
Consequences for employees
If your employees do not file wage claims or lawsuits, they may also face tax penalties for employer mistakes. Because they under-report income, they may struggle when applying for loans, credit cards, or mortgages. Under-reported income also impacts their Medicare and Social Security contributions, reducing their future benefits.
Simplify tip management with 7shifts
Pennsylvania’s complex tip laws can make managing tips a challenge. Our restaurant tip management software helps you simplify the process with automated tools for calculating tip distribution, handling payouts, and generating reports. By reducing administrative burden, 7shifts lets you save time, improve operational efficiency, and focus on running your business.
Rebecca Hebert, Sales Development Representative
Rebecca Hebert
Sales Development Representative
Rebecca Hebert is a former restaurant industry professional with nearly 20 years of hands-on experience leading teams in fast-paced hospitality environments. Rebecca brings that firsthand knowledge to the tech side of the industry, helping restaurants streamline their operations with purpose-built workforce management solutions. As an active contributor to expansion efforts, she’s passionate about empowering restaurateurs with tools that genuinely support their day-to-day operations.
