More than a year ago, in June 2018, the Pennsylvania Department of Labor and Industry (DLI) proposed new regulations under the Pennsylvania Minimum Wage Act (PMWA) that would increase significantly the minimum salary requirement for the white-collar overtime exemptions under this law.
The PMWA is the state-law equivalent of the federal Fair Labor Standards Act (FLSA). The PMWA and FLSA both place minimum wage and overtime pay obligations for Pennsylvania employers. While the laws’ requirements are similar, they are not identical. Employers in Pennsylvania must meet the requirements of both laws to ensure compliance. In areas where one law is more favorable to employees than the other, Pennsylvania employers must comply with the more employee-friendly requirements to avoid liability for unpaid minimum wages or overtime pay.
The DLI’s June 2018 proposed regulations sought to increase the PMWA’s white-collar overtime exemptions’ minimum salary requirements dramatically, ultimately to $921 per week ($47,892 annually) within two years of the final regulations’ publication date.
Needless to say, the proposed regulations were controversial. In September 2018, Pennsylvania’s Independent Regulatory Review Commission (IRRC) published comments on the proposed regulations that concluded that DLI needed to do more to justify the proposed regulations and included a number of questions and concerns.
We heard nothing formal from DLI after the IRRC’s critical comments until more than a year later. On October 17, 2019, DLI submitted its final regulations on this topic to the IRRC and legislative oversight committees. The IRRC has scheduled a public meeting on November 21, 2019, to consider the final regulations.
If DLI’s final regulations are approved and take effect, they will increase the white-collar exemptions’ minimum salary requirements under the PMWA to:
- $684 per week ($35,568 annually) effective January 1, 2020
- $780 per week ($40,560 annually) effective January 1, 2021
- $875 per week ($45,500 annually) effective January 1, 2022
That’s not all. On January 1, 2023, and every third year thereafter, the minimum salary requirement would automatically change to an amount equal to the 10th percentile of all Pennsylvania workers who work in salaried exempt positions. If the automatic “adjustment” works as intended, those employees whose salaries are in the bottom 10% of salaried exempt employees in Pennsylvania will need to receive compensation increases to meet the new increased requirement and qualify for an exemption.
The final regulations did incorporate the provision from the new FLSA regulations that would allow employers to meet up to 10% of the minimum salary amount with the payment of incentive compensation, non-discretionary bonuses, and/or commissions that are paid at least annually.
The final regulations also made certain changes to some of the PMWA exemptions’ duties tests to make those requirements more closely align the state law requirements with the FLSA. However, these limited changes to the duties tests do not eliminate the majority of differences between the FLSA and PMWA that continue to vex employers. For example, unlike the FLSA, the PMWA still will not have an explicit exemption for computer professionals, a highly compensated employee exemption, or a specific provision that exempts teachers, physicians, and lawyers from the exemptions’ salary requirement.
Thankfully, the minimum salary increase effective January 1, 2020 in the DLI’s final regulations would align the minimum salary requirements of the FLSA and PMWA for one year. Unlike the final rule recently issued by the U.S. Department of Labor on the FLSA white-collar overtime exemptions, the PMWA regulations provide for additional increases to the minimum salary requirement in 2021, 2022, and 2023 and every three years thereafter. If the new PMWA regulations take effect, Pennsylvania employers will face another significant increase in the minimum salary requirements for calendar year 2021.
The PMWA’s requirements apply to essentially all employers in Pennsylvania. Pennsylvania employers are now one step closer to higher minimum salary requirements for the PMWA’s white-collar exemptions in 2020 and beyond. Beginning in 2021, it will be only more difficult for employers to navigate conflicting legal requirements and ensure compliance with the requirements of both the FLSA and PMWA.
Pennsylvania employers must ensure compliance with federal and state legal requirements for minimum wage and overtime exemption classifications or face the risks of non-compliance in the form of costly class-based litigation and government agency investigations. Now is the time for employers to begin the process of ensuring compliance with the new requirements that will take effect in 2020 and beyond.