Pennsylvania Employers Face Substantial Salary Increases to Maintain Overtime Exemption

Pennsylvania Employers who pay a salary to certain classifications of employees are exempted from having to pay overtime to those employees if the salary meets a certain minimum. The exemptions are similar to exemptions under the federal Fair Labor Standards Act. The exemptions under Pennsylvania law apply to employees classified as either Executive, Administrative, or Professional. Historically, the minimum salary that employers had to pay such employees to qualify for the exemption tracked the federally mandated minimum salary. In June 2018, the Pennsylvania Department of Labor proposed new regulations that would substantially increase the minimum salary that must be paid for the state exemption to apply. The Proposed  Rule is now in final form and will be subject to a public meeting on November 21, 2019. If approved at that meeting, the final Regulation will apply to all businesses (i.e., no exemption for either small businesses or non-profit entities) and  effective January 1, 2020, and each of the next two years thereafter, the minimum salary will be adjusted as follows:

The 2020 increase is in the same amount as the recently announced federal DOL wage increase for similar exemptions under the FLSA, but those in the following years will be significantly higher than the federal minimum. Accordingly, employers who have relied on the federal minimum as satisfying the Pennsylvania Minimum Wage Act no longer will be able to do so.

            

Further complicating matters under the proposed final regulation is that, beginning January 1, 2023, and every third year thereafter, the minimum salary necessary to meet the salary test for the exemption will be adjusted automatically to an amount equal to the tenth percentile of all Pennsylvania workers who are in salary exempt jobs. What that means is that every three years, the lowest-paid ten percent in salary exempt jobs will have to have their salary adjusted upward if the exemption is to be taken.  

As with the recent changes under the FLSA, the new Regulation, if adopted, (and we predict that it will be) requires employers to look at each incumbent in an exempt position and determine, based on anticipated overtime, whether it makes more sense to increase the salary to keep the exemption or to lose the exemption and pay overtime and, that assessment will have to be made for each year in which the Regulation mandates an adjustment to the minimum salary. This is not simply a financial issue as salaried employees converted to an hourly wage might have an emotional response.

Pennsylvania employers should be aware that the exemptions apply only if certain “duties” tests are satisfied for the exempt positions and that the Pennsylvania duties tests under the Regulation are somewhat different from the duties tests under federal law. In some respects, the Pennsylvania duties tests are more liberal than the federal tests, meaning that more employees satisfying the salary test might qualify for the Pennsylvania exemption. If the Regulation becomes final, employers should make sure that both the salary and duties tests under federal and state law are met.