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How Does Tipped Minimum Wage Work?

As of March 2020, Pennsylvania allows employers to take a tip credit towards the wages of an employee. Wage is any compensation due to any employee which is payable with the United States’ legal tender. Tip credit is the difference between the state minimum wage and the cash wage an employee is paid. Pennsylvania’s minimum wage is $7.25 and the cash wage for tipped employees is 2.83. The difference between Pennsylvania’s minimum wage and the cash wage is current $4.42.

The Fair Labor Standards Act (FLSA) permits employers to pay employees less than the standard. That being said, if an employee doesn’t earn enough from tips to meet PA’s minimum wage requirement, the employer has to make up the difference.

If an employee has two jobs and one job is to spend some of their shift doing non-tipped work, the employer can take a tip credit for the time spent on non-tipped duties. The employer can do this if the non-tipped work relates to the tipped work an employee does and is completed immediately before, after, or during tipped worked.

Some places charge a mandatory service charge from individuals or parties of a certain sizes. Under FLSA, a service charge cannot be considered a tip and any portion of that service charge, if any, that is given to the employee cannot be used by the employer towards the tip credit.

Pennsylvania’s’ minimum wage laws to allow employers to make tip pooling a requirement. However, it cannot be a requirement for tipped employees to share tips with non-tipped employees.

So, how does the tip credit system work? This system relies on the tipped employee to report all tips to the employer. The employees’ report allows the employer to apply tip credits to any wages paid as well as reporting the employees’ income


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