Pennsylvania Proposes Big Changes to State Law White-Collar Overtime Exemptions
June 21, 2018
by Adam Long
Back in January, Governor Wolf announced that the Pennsylvania Department of Labor and Industry (DLI) would propose new regulations under the Pennsylvania Minimum Wage Act (PMWA) that would increase 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 pro-employee requirements to avoid liability for unpaid minimum wages or overtime pay.
Last week, DLI submitted a proposed rulemaking to amend the PMWA regulations that govern its overtime and minimum wage exemptions for executive, administrative, and professional salaried employees. The proposed changes to the regulations are significant and will seem like déjà vu for employers who recall the saga of the 2016 FLSA regulations.
Increased Salary Requirement
The DLI’s proposed regulations would increase the minimum salary level for the PMWA’s white-collar exemptions to:
- $610 per week ($31,720 annually) effective on the date the final rule is published in the Pennsylvania Bulletin;
- $766 per week ($39,832 annually) effective one year after the publication of the final rule; and
- $921 per week ($47,892 annually) effective one year later.
By comparison, the current minimum salary requirement for the FLSA’s white-collar exemptions is $455 per week ($23,660 annually). Thus, the proposed regulations would more than double the minimum salary requirement for the white-collar exemptions for Pennsylvania employers by 2021.
And that’s not all. Three years after the publication of the final rule in the Pennsylvania Bulletin, and on January 1 every three years thereafter, the minimum salary requirement will be automatically updated to the 30th percentile of weekly earnings of full-time non-hourly workers in the Northeast Census region in the second quarter of the prior year as published by the United States Department of Labor, Bureau of Labor Statistics.
The proposed regulations would allow up to 10% of the salary amount to be paid with “non-discretionary bonuses, incentives, or commissions” that are paid at least quarterly.
Changes to the Duties Test
To qualify for most of the white-collar exemptions, an employer must be able to prove both that the employee at issue meets the minimum salary requirement and meets the exemption’s duties test. Unlike the 2016 FLSA regulations, DLI has proposed changes to the duties tests for the PMWA’s white-collar exemptions, in addition to the big increases to the minimum salary requirement.
DLI explained that the proposed changes to the duties tests were designed to more closely align them with the duties tests for the FLSA’s exemptions. However, with both the changes they propose and changes not proposed, the proposed regulations fail to do so.
For example, the proposed regulations would require exempt executive employees to “customarily and regularly exercise discretionary powers,” a requirement that does not expressly exist in the FLSA exemption. Similarly, the proposed regulations modify the administrative exemption to require that exempt administrators “customarily and regularly” exercise discretion and independent judgment with respect to matters of significance. The FLSA regulations require only that the exempt administrator’s primary duty “includes” the exercise of discretion and independent judgment with respect to matters of significance. While these language differences seem minor, they likely would be used by plaintiffs’ attorneys to argue that the duties’ requirements for the PMWA and the FLSA’s white-collar exemptions are not the same, complicating compliance efforts, increasing the risks for employers, and contradicting DLI’s stated objective with the proposed changes.
Disappointingly, the many areas where the PMWA’s regulations will continue to differ from the FLSA’s regulations even if the proposed regulations take effect. For example, unlike the FLSA and its regulations, DLI did not in its proposed regulations:
- Recognize a computer professional exemption under the PMWA;
- Recognize a highly compensated employee exemption under the PMWA;
- Recognize a specific exemption for administrative employees of educational establishments under the PMWA; or
- Make the requirements of the outside sales exemption the same under both laws.
The differences between the overtime exemption requirements of the FLSA and the PMWA create confusion and inhibit compliance efforts by employers. The proposed regulations will allow significant differences to continue to exist.
The proposed regulations are expected to be published in the Pennsylvania Bulletin in the very near future. After publication, DLI will accept written public comments on the proposed regulations for a period of 30 days. After the public comment period closes, DLI will consider the submitted comments and then likely prepare a final rule, which DLI anticipates issuing in 2019.
It is unclear whether the final rule will be the same as the proposed regulations or different in substantive ways. It is likely that the new minimum salary requirements will be challenged in court, just as the 2016 FLSA regulations were challenged and ultimately blocked. Whether and to what extent any court challenge would be successful is unclear, and there certainly is no guarantee that a challenge would be successful. In other words, the defeat of the 2016 FLSA regulations in federal court in Texas by no means assures a similar fate for new PMWA regulations in this area.
We will continue to monitor the progress of DLI’s efforts to change the PMWA’s white-collar overtime exemption regulations and provide updates as they occur. Stay tuned.
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