Pennsylvania tipped wage and tip credit for restaurants: a worked example

Pennsylvania's minimum wage follows the federal rate of 7.25 dollars an hour, and the state lets restaurants pay tipped employees a lower cash wage as long as tips make up the rest. For a business owner, the number is only the start: the make-up rule, the definition of a tipped employee and the paperwork matter as much. This guide, last checked in October 2026, explains the rule with a worked example. It is general information, not legal advice, and the Pennsylvania Department of Labor and Industry is the authority for current rules.

What is the tipped wage in Pennsylvania?

Pennsylvania's minimum wage follows the federal rate of 7.25 dollars an hour. The Department of Labor and Industry says that, for rules in effect since August 5, 2022, an employer that takes a tip credit must pay a cash wage of at least 2.83 dollars an hour, and the cash wage plus tips must still reach 7.25 dollars an hour. That implies a maximum tip credit of 4.42 dollars. Bills to raise the state minimum wage are debated from time to time, so check the department's page for the current rate before you set payroll.

How does the make-up rule work?

In each pay period, add the employee's cash wages and the tips they received, and divide by the hours worked. If the result is below 7.25 dollars an hour, you must pay the difference. For example, a server works 32 hours in a week at 2.83 dollars, which is 90.56 dollars, and receives 110 dollars in tips. The total is 200.56 dollars, about 6.27 dollars an hour. The minimum for 32 hours is 232.00 dollars, so you owe 31.44 dollars. In a busy week with 250 dollars in tips, the total is 340.56 dollars and no make-up is due. Keep the calculation on file for each pay period.

Who counts as a tipped employee?

Pennsylvania law defines a tipped employee as one who customarily and regularly receives tips. Since August 5, 2022, the department says an employer may take a tip credit only for an employee who earns at least 135 dollars a month in tips, up from 30 dollars. A law firm reading of the rule says the threshold must be met in each month, and that averaging across months does not appear to be allowed. The state rule, 34 Pa. Code section 231.114, also says service charges may not be counted toward the 135 dollar threshold. A server or bartender on a busy shift will exceed it. A part-time host may not, so check each month.

What is the 80/20 rule?

The department's rules incorporate the federal limit on non-tipped work. If a tipped employee spends more than 20 percent of the workweek on duties that do not produce tips, such as cleaning or prep, the employer must pay the full 7.25 dollars an hour for the time over that limit. the state rule did not adopt the federal bar on tip-credit pay after 30 continuous minutes of non-tipped work, according to law firm summaries of the final rule. If your servers do long side-work shifts before opening, track the time and ask the department how it treats them.

What about overtime?

Overtime is owed for hours over 40 in a week. The rate is one and a half times the regular rate, which is based on the full minimum wage, not on the cash wage alone. State rulemaking in 2022 addressed how overtime is calculated for tipped workers, so ask your payroll provider to confirm the method against the department's page. A common mistake is to pay one and a half times 2.83 dollars, which is too low.

What notice and records do you need?

An employer taking a tip credit should tell employees in advance, in writing, and display the department's wage poster. Keep payroll records of hours, cash wages, tips reported, deductions and any make-up payments, and check the department's page for how long to keep them. Have employees report tips each pay period, and keep their reports. The 2022 rules also bar deducting credit card processing fees from tips. Pay tips out promptly. State guidance also expects records of tip pool participants, as the pooling guide in this series explains.

When should you consider paying more?

A low cash wage and variable tips can make hiring hard in a tight labor market. Some owners pay a higher base wage, drop the tip credit or add a service charge shared with staff. Each approach changes your menu prices, your payroll taxes and how guests see the check. Model them before you decide, and tell your team early. Philadelphia and Pittsburgh have their own employee rules, such as sick leave, that apply on top of state rules, and separate guides in this series cover them.

What should you do this month?

Read the department's current page on overtime and tipped worker rules. Check your payroll settings for the cash wage and make-up calculation. Review your tip reports for the last quarter and test two weeks by hand. Make sure the wage poster is up. If you have mixed-duty staff, write down their duties and times. A short audit now costs far less than a back-wage claim later.

A final point concerns how you talk about pay. Prospective hires will compare the cash wage and the likely tips, so give them an honest range based on your own tip reports, not a best-case week. Explain how the make-up works, and show a sample pay stub. A server who understands that the business covers the minimum in a slow week is more likely to stay through the quiet months. Update the figures each season, since a patio summer and a snowy February produce very different tips. Honest numbers protect you from a claim that you misled staff about earnings, and they help you hire people who fit the shifts.

More guides for your business:

• Pennsylvania tip pooling and service charge rules for restaurants
• Hiring teenagers at a Pennsylvania restaurant: permits and hours
• How to get more customers to your Pennsylvania restaurant (2026)

More in the US guides for food businesses.