In what seems like an eternity 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.
After many twists and turns, these regulations were published in their final form on October 3, 2020 and are now law in Pennsylvania. These regulations can be found here.
The PMWA is the state-law equivalent of the federal Fair Labor Standards Act (FLSA). The PMWA’s requirements apply to essentially all employers in Pennsylvania. The PMWA and FLSA both place minimum wage and overtime pay obligations on 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 new overtime exemption regulations increase the minimum salary requirement for the PMWA’s white-collar overtime exemptions as follows:
- $684 per week ($35,568 annually) on October 3, 2020 (note: this is the current level required by the FLSA and has been in effect since January 1, 2020);
- $780 per week ($40,560 annually) on October 3, 2021; and
- $875 per week ($45,500 annually) on October 3, 2022.
Starting in 2023, the salary threshold will adjust (i.e., increase) automatically 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 new regulations also modify the duties tests for the PMWA’s white-collar overtime exemptions. While these changes were purportedly designed to more closely track the FLSA’s companion exemptions, there are still differences between the overtime exemption tests under the FLSA and PMWA in a number of critical areas.
The new regulations 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.
So what does this mean for Pennsylvania employers? For the next year (i.e., until October 3, 2021), the white-collar exemptions’ minimum salary requirements under the PMWA and FLSA are the same. That’s the good news.
Now for the rest of the news. On October 3, 2021, the minimum salary requirements for the PMWA’s white-collar exemptions will increase significantly to $780 per week ($40,560 annually). Thus, by October 3, 2021, any employee classified as exempt under a white-collar exemption that has a minimum salary requirement who earns less than that amount will need to receive a salary increase to at least meet this amount or be reclassified as non-exempt (and made eligible for overtime pay) going forward. In addition, significant increases will also occur in 2022 and 2023.
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. Employers should be aware of the new increased minimum salary requirements that will take effect in October 2021 and beyond and ensure they have a strategy to address these requirements for affected employees.
If you have questions about how these changes might affect your business or your employees, please contact any member of the McNees Labor & Employment Practice Group.