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With approximately 90,700 minimum wage employees in Pennsylvania, it is of little surprise that that minimum wage laws are a frequent topic of conversation and debate. However, most often, the discussion is limited to the wage itself, and the nuances of the laws governing employee compensation are frequently glossed over. The statutes and regulations setting the minimum wage, the Pennsylvania Minimum Wage Act of 1968 (PMWA), 43 P.S. Sections 333.101 et seq., 34 Pa. A.D.C. Section 231.1 et seq., and the federal Fair Labor Standards Act (FLSA), 29 U.S.C.A. Sections 201 et seq. and 29 C.F.R. Ch. V, Pt. 510 et seq., both do much more than simply establishing a minimum rate of pay, and the other requirements are of no less import to Pennsylvania employers’ legal obligations, liability, or bottom line. This year, while debates over the minimum wage were had at dinner tables and debate stages across the nation, both the Pennsylvania and federal overtime regulations were quietly amended to cover more employees, and thus effect more employers than they ever have before.
Historically, the minimum wage and overtime requirements have always gone hand-in-hand. The FLSA was passed in 1938 to establish minimum standards for workers engaged directly or indirectly in interstate commerce. In addition to establishing a minimum wage, it also established the maximum workweek, overtime pay requirements and more. The PMWA, enacted in 1968, largely mirrors the FLSA, and covers most private employers, including those also subject to the FLSA. Where both the PMWA and FLSA apply, an employer is required to comply with both laws, or the stricter requirement favoring the employee. The PMWA sets the Pennsylvania minimum wage equal to that under the FLSA, and both require nonexempt employees to receive overtime pay equal to one and a half times “the regular rate for all hours worked in excess of forty in a workweek.” Who is an eligible non-exempt employee depends on how they are paid and how much they are paid, as well as their job duties or job classification. Generally, with some exceptions, hourly employees who work more than 40 hours per week are eligible for overtime. In addition, certain salaried employees may be eligible based on their salary and their job duties, while others are explicitly exempt, such as farm labor or domestic service workers.
Both the FLSA and PMWA regulations contain an overtime salary threshold, which sets forth a minimum salary requirement, under which otherwise nonexempt employees must be paid overtime. On Jan. 1, the FLSA regulations were updated to expand FLSA overtime eligibility to all employees with a salary at or below $35,308 per year. Pennsylvania employers subject to the FLSA were required to adhere to the federal salary threshold increase on Jan. 1, but on Oct. 3, the Pennsylvania Department of Labor & Industry (L&I) increased Pennsylvania’s salary threshold even further.
For the first time in over four decades, the PWMA regulations were amended to set a new minimum salary threshold of $875 per week or $45,500 per year, exceeding the federal requirements set earlier in the year. The new regulations are expected to expand overtime eligibility to 143,000 employees in Pennsylvania, and strengthen the regulations pertaining to 251,000 more. The new threshold is scheduled to be rolled out in phases, and will increase from the 2020 federal level, to $780 per week or $40,560 annually, on Oct. 3, 2021, and again to $875 per week or $45,500 annually, on Oct. 3, 2022. Beginning in 2023, the salary threshold will automatically adjust every three years. Up to 10% of those salary levels may be satisfied by commissions, incentive payments, and other non-discretionary bonuses.
As mentioned above, certain employees may be exempt from overtime rules, regardless of their salary, if they perform executive, administrative or professional duties. The Oct. 3 rulemaking also altered the test used to determine whether an employee is exempt for one of those reasons. This new “duties test,” contained in Section 5(a)(5) of the PMWA, was altered to more closely align with those contained in the FLSA. Employees below the salary threshold may be exempt as an executive, administrative, or professional employee, respectively, if they meet any of the following requirements: their primary duty is management of the enterprise or managing a customarily recognized department or subdivision of the enterprise, and their work requires customary and regular direction of at least two full-time employees; their primary duty consists of office or nonmanual work directly related to management policies or general operation of their employer or their employer’s customers, and their work requires the exercise of discretion and independent judgment; or their primary duty consists of work requiring the knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized instruction and study or work that is original or creative in character in a recognized field of artistic endeavor, and the work requires the exercise of discretion and judgment or invention, imagination or talent in a field of artistic endeavor. Employees meeting these requirements (think CEOs, consultants, attorneys, musicians or similar positions) remain ineligible for overtime payments regardless of their salary, but the adjustment of the duties test outlined above is expected to increase the number of nonexempt employees, and consequently increase overtime requirements for employers.
Finally, the PMWA, including the new overtime regulations, remains inapplicable to certain public employers, including state-affiliated entities, counties, municipalities and public school systems. Commentary issued along with the new regulations confirmed this position, although such employers remain subject to the FLSA and federal regulations. Public employers must thus adhere to the federal $35,308 per year salary threshold, but are not required to conform to the increases scheduled for 2021 and 2022.
The new federal and state regulations could have a significant impact on the overtime liabilities of Pennsylvania employers. Employers in violation of the PMWA may be subject to fines and imprisonment, in addition to civil actions brought by employees or the Secretary of L&I to recover unpaid wages, costs and reasonable attorney fees. Similarly, employers who willfully or repeatedly violate the overtime pay requirements of the FLSA are subject to civil penalties of up to $1,000 for each violation. Consequently, it is important that Pennsylvania employers closely analyze which statute or regulations apply to them, and whether they have any nonexempt salaried employees for whom they now must provide overtime compensation for hours worked in excess of 40 hours per workweek.
Stephen L. Korbel is a shareholder in the public sector and employment and labor groups of Babst Calland Clements & Zomnir. He counsels public and private employers in all aspects of the employment relationship, from hiring through termination. Contact him at firstname.lastname@example.org or 412-394-5627.
Anna Z. Skipper is an associate in Babst Calland’s Public Sector Group and focuses her practice on zoning, subdivision, land development, and general municipal matters. Contact her at email@example.com.
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Reprinted with permission from the October 29, 2020 edition of The Legal Intelligencer© 2020 ALM Media Properties, LLC. All rights reserved.