Pennsylvania Raises Salary Threshold for White Collar Overtime Exemptions
Late last week, Pennsylvania’s Secretary of Labor & Industry (“L&I”) announced that new “white collar” overtime regulations under the Pennsylvania Minimum Wage Act (“PMWA”) would become effective upon being published on Saturday, October 3, 2020. This sudden announcement has taken many employers by surprise, as revised regulations had been in the works for several years but had not been highly publicized, particularly in recent months.
A common misconception among employers is that an employee who is paid on a salary basis is not eligible for overtime compensation under the PMWA or the federal Fair Labor Standards Act (“FLSA”). For an employee to properly be classified as exempt (and therefore be ineligible for overtime) under the “white collar” exemptions to these laws, both a “salary” test and a “duties” test must be satisfied. To meet the “salary” test, the employee must be paid on a salary basis (i.e., receiving a predetermined amount of compensation per week that cannot be reduced due to variations in the quality or quantity of his/her work) that meets or exceeds a threshold level set by the law. The applicable “duties” test depends on the particular “white collar” exemption that is claimed (e.g., executive, administrative, or professional). Notably, the new regulations make changes to both tests under the PMWA.
Salary Test
Due to new regulations that took effect on January 1, 2020, the minimum salary threshold that must be met under the FLSA is now $684.00/week ($35,568.00/year). The new PMWA regulations increase the applicable minimum salary threshold to $875.00/week ($45,500.00/year) according to the following schedule:
October 3, 2020: $684.00/week ($35,568.00/year)
October 3, 2021: $780.00/week ($40,560.00/year)
October 3, 2022: $875.00/week ($45,500.00/year)
Starting October 3, 2023, the salary threshold will automatically change to the 10th percentile of Pennsylvania employees who work in the “white collar” exempt position. This automatic reset will occur every three (3) years after 2023.
In addition, up to 10% of the salary threshold amount can be satisfied by non-discretionary bonuses, incentives, and commissions that are paid annually, quarterly, or more frequently.
Duties Tests
The new PMWA regulations also revise certain duties tests in an attempt to align the applicable tests under the PMWA and the FLSA. For example, the new regulations no longer require exempt executive employees to “customarily and regularly” exercise discretionary powers. In addition, the new regulations no longer require exempt administrative employees to “customarily and regularly” exercise discretion and independent judgment. Now, their primary job duty must include the exercise of discretion and independent judgment on matters of significance.
What’s Next?
It is almost certain that the new PMWA regulations will be challenged in court in the coming months. Nevertheless, in order to remain complaint and avoid wage and hour suits and/or audits by L&I, employers must identify employees affected by the new regulations and decide whether to increase their salaries so as to maintain their exempt status as of October 3, 2021 and October 3, 2022, or, alternatively, reclassify them as non-exempt. Employers must remember that, for the “salary” test to be met under both state and federal law, an employee must be paid at the higher salary threshold.
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