If your Pennsylvania office pays sales tax on the full cleaning bill, you’re probably paying more than you have to. There’s a rule that lets you pay tax only on the non-labor part of the job, and using it comes down to one thing, getting the cleaning company to state the labor separately on the invoice, what the state calls separately stated labor.
Cleaning is mostly labor. When the wages come out of the taxed amount, the number the 6 percent lands on gets a lot smaller. On a typical office bill that’s real money every month, and almost nobody claims it.
The rule comes straight from Pennsylvania’s cleaning tax regulation, 61 Pa. Code 60.1, and using it is mostly about what your invoice says.
What the Separately Stated Labor Rule Says
Since April 1, 1995, Pennsylvania has let the labor portion of interior office cleaning come out of the taxable amount. Before that date, the whole bill was taxed. After it, the wages and related costs of the people cleaning your office can be excluded, as long as they’re stated separately on the invoice.
The state uses two terms for the math. The gross fee is the full amount charged. The service fee is the gross fee minus the separately stated employee costs. That service fee, the smaller number, is what the 6 percent applies to.
So the whole move is turning one taxed number (the gross fee) into two, and only paying tax on the part that isn’t labor. This only applies to the interior of an office building, which we’ll come back to. For the bigger picture of how Pennsylvania taxes cleaning in the first place, see our guide on whether office cleaning is taxable in Pennsylvania.
And if tax is only one of the things you’re trying to get right on a new cleaning contract, the office cleaning services guide shows where the tax line fits in the rest of the decision.
What Counts as Employee Costs
The exclusion is specific about what “employee costs” means. It’s the cost of the people, not the company’s overhead. Included:
- Wages, salaries, bonuses, and commissions for the workers on your account
- Employment benefits, like paid leave, health care, and retirement
- Expense reimbursements, such as mileage or supplies the worker fronts
- Payroll and withholding taxes, including the employer’s share of Social Security and unemployment taxes
Some things a cleaning company spends money on are not employee costs and can’t be excluded:
- Recruiting and training
- Liability insurance
- Bonding expenses
That line matters because it decides how big the excluded chunk is. The direct cost of the crew comes out; the cost of running the business stays in the taxed service fee.
The Three Ways the Tax Gets Calculated
Pennsylvania allows three methods to figure the taxable price of interior office cleaning, and which one you get depends entirely on how the invoice is written.
- Gross fee method. If employee costs are not stated separately, the taxable price is the whole gross fee. Everything gets taxed. This is the default you land in when the bill is one lump number.
- Actual service fee method. If employee costs are stated separately, the taxable price is the actual service fee, the gross fee minus that labor. This is the one that saves you money.
- Average method. A company may instead use an average employee cost or average service fee from a prior period. It can do this, but at its own risk: if the average it reported turns out lower than the real labor cost, the state can assess the shortfall plus interest and penalties.
A lump-sum invoice puts you in the gross fee method and taxes everything. An itemized invoice puts you in the actual service fee method and taxes the smaller number.
What Your Invoice Has to Show
To use the exclusion, the invoice has to lay out the math. At a minimum, the state expects these lines:
- Gross Fee
- Less: Employee Costs
- Taxable Service Fee
- PA Sales Tax Rate
- PA Sales Tax Due
- Total Invoice Amount
That format is the whole mechanism. It shows which part of the bill is labor and which part is the taxable service fee, so the tax only lands on the service fee.
The difference adds up. Say your office cleaning runs $1,000 a month. If the invoice itemizes $700 of employee costs, the taxable service fee is $300, and the tax at 6 percent is $18. Without the labor stated, the 6 percent hits the full $1,000, so the tax is $60. That’s $42 a month on a single account, a little over $500 a year, for one line on an invoice. Getting that line into your agreement is exactly the kind of thing a good commercial cleaning contract should nail down.
If Your Cleaner Is a Sole Proprietor or Small Partnership
The rule still works when the cleaner is a one-person business or a small partnership, but the math is a little different, because a sole proprietor doesn’t pay themselves a wage.
For a sole proprietor, employee costs also include the net profit or loss reported on the prior year’s Schedule C. For a partnership, they include the partners’ net profits and guaranteed payments for their services. The state then uses a ratio: gross sales minus net profit, divided by gross sales, gives the share of each invoice that’s taxable.
The regulation’s own example makes it concrete. A sole proprietor reported $50,000 in gross sales and $20,000 in net profit for 1994. Gross sales minus net profit is $30,000, which is 60 percent of $50,000. So the following year, that cleaner collects tax on 60 percent of each interior office cleaning invoice, not the whole thing.
The Two Conditions That Both Have to Be True
The exclusion only works when both of these hold:
- The building is an office building. That means more than 50 percent of its total square footage is used for business. Ordinary offices qualify, and so do warehouses, retail stores, banks, restaurants, and hotels. A home office that’s under half the house does not.
- The labor is stated separately on the invoice. Itemized or listed as one aggregate figure, either works. A lump sum does not.
Miss either one and you’re back to tax on the full amount. Both are easy to meet, which is what makes leaving this money on the table so common.
How to Actually Get This
Start by looking at your current cleaning invoice. If it’s a single “cleaning service” line, you’re in the gross fee method, paying 6 percent on labor you don’t owe tax on.
Then do two things. Confirm your space is used more than half for business, which almost every office is. And ask your cleaning company to separately state employee costs on your invoices going forward. A company that regularly cleans Pennsylvania offices should already know how, and be able to set it up without a fuss.
If yours can’t or won’t itemize labor, that’s worth weighing when you compare providers, alongside the pre-tax price itself, which our guide to commercial cleaning costs in Pennsylvania breaks down. When you ask us for a quote, itemized labor is built into how we bill office accounts. Call (800) 851-0806 and we’ll set it up right from the first invoice.
Frequently Asked Questions
How do I lower the sales tax on office cleaning in Pennsylvania?
Have the cleaning company separately state the employee costs (labor) on your invoice. For the interior of an office building, that labor is excluded from the taxable amount, so the 6 percent sales tax only applies to the remaining service fee instead of the whole bill. A lump-sum invoice gets taxed in full.
What does “separately stated labor” mean on a cleaning invoice?
It means the invoice lists the workers’ costs, wages, benefits, and payroll taxes, as their own line or aggregate figure, apart from the total. Pennsylvania then taxes only the service fee, which is the gross fee minus those employee costs. If labor isn’t separated out, the entire amount is taxable.
Do I pay sales tax on cleaning labor in Pennsylvania?
Not for interior office cleaning, if the labor is stated separately on the invoice. Since April 1, 1995, separately stated employee costs on interior office building cleaning are excluded from the taxable amount. If the invoice is a single lump sum, though, the labor is taxed along with everything else.
What has to be on the invoice to exclude the labor?
At a minimum: the Gross Fee, a “Less: Employee Costs” line, the Taxable Service Fee, the PA Sales Tax Rate, the PA Sales Tax Due, and the Total Invoice Amount. That format shows the state which part is labor and which part is the taxable service fee.
What counts as employee costs?
Wages, salaries, bonuses, commissions, employment benefits, expense reimbursements, and payroll and withholding taxes, including the employer’s share of Social Security and unemployment taxes. It does not include the company’s recruiting, training, liability insurance, or bonding costs, which stay in the taxable service fee.
Does this work if my cleaner is a one-person business?
Yes, with a different calculation. For a sole proprietor, employee costs include the net profit from the prior year’s Schedule C, and the state applies a ratio (gross sales minus net profit, divided by gross sales) to each invoice. A partnership works similarly using the partners’ net profits and guaranteed payments.