Although the details of the new regulations are not fully known, the governor’s announcement clearly signals that the PMWA’s regulations are likely to see a material revision that will result in more employees being eligible for overtime compensation than under the current federal Fair Labor Standards Act (“FLSA”) regulations.
On January 17, 2018, Pennsylvania Gov. Tom Wolf expanded on his “Jobs That Pay” initiative and announced a directive to the Pennsylvania Department of Labor & Industry to expand and clarify the regulations relating to the Pennsylvania Minimum Wage Act (“PMWA”). The governor’s proposal, if implemented, claims that it would expand overtime eligibility and compensation for an estimated 370,000 to 460,000 workers in Pennsylvania. Gov. Wolf proposes to overhaul the PMWA’s overtime rules in two ways: (1) by raising the salary threshold required to claim an exemption from state overtime requirements starting on January 1, 2020, with specified increases through 2022 and automatic increases to follow thereafter; and (2) by “clarifying” in unspecified ways the “duties” components of the executive, administrative and professional employee exemption eligibility criteria.
Although the details of the new regulations are not fully known, the governor’s announcement clearly signals that the PMWA’s regulations are likely to see a material revision that will result in more employees being eligible for overtime compensation than under the current federal Fair Labor Standards Act (“FLSA”) regulations. According to the governor’s announcement, elements of which track the now-stalled Obama Administration’s attempt to substantially increase the FLSA’s exemptions salary thresholds, employers should anticipate that:
- Starting on January 1, 2020, the salary level to determine overtime eligibility for most workers will increase to $610 per week ($31,720 annually). This would reflect an increase from the federal minimum of $455 per week ($23,660 annually), a sum that currently exceeds the 40-year-old weekly thresholds set by current Pennsylvania regulations.
- On January 1, 2021, Pennsylvania’s salary threshold would increase to $766 per week ($39,832 annually).
- On January 1, 2022, Pennsylvania’s salary threshold would again increase to $921 per week ($47,892 annually), which is an amount slightly higher than the increase proposed by the Obama Administration that was halted by a federal court ruling.
- Every three years thereafter, the salary threshold would update automatically (though the formula for these increases has not been disclosed).
If implemented, the governor’s announced changes would mark a significant development for Pennsylvania employers because even if the FLSA and its implementing regulations see little to no change under the Trump Administration, employees get the benefit of federal or state overtime law, whichever is more favorable (i.e., would result in the employee being eligible for overtime compensation). Thus, under the governor’s proposal, Pennsylvania employers would be required to comply with the more generous Pennsylvania overtime regulations.
The full extent of the proposed changes remains to be seen. By way of example, it is not known whether the reworking of the PMWA’s regulations would involve clarifying issues like the availability of the fluctuating workweek (“FWW”) method of compensation for overtime-eligible (non-exempt) employees who earn a fixed salary. The Pennsylvania Superior Court’s December 22, 2017 decision in Chevalier v. Gen. Nutrition Centers, Inc. held that employees compensated pursuant to the FWW method are to be paid overtime compensation that is 1.5 times higher than the employee’s regular rate (which is substantially more than the rate employers might have thought was required since the FLSA only requires 0.5 times the regular rate). Notably, the dissenting judge in Chevalier urged the Pennsylvania Department of Labor & Industry to clarify the mechanics of the FWW under Pennsylvania law, an invitation that could be accepted.
What This Means for Employers
Pennsylvania employers should monitor this anticipated change in Pennsylvania wage and hour law and the federal Department of Labor’s recent announcement that it too would be undertaking rulemaking to revise the executive, administrative, and professional employee exemptions under the FLSA. We will keep you informed regarding potential opportunities to participate in any notice and comment processes associated with any new regulations, as well as possible challenges to the anticipated regulations in light of potential procedural and substantive deficiencies. Finally, employers should remember that other states, including, but not limited to, California and New York, currently have in place salary thresholds for state overtime exemptions that are higher than the threshold under federal law.
If you have any questions about this Alert, please contact any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.