Pennsylvania Employers Stay On Alert: State Compensation Laws In Flux

January 13, 2020

As most Pennsylvania employers know, the United States Department of Labor (“DOL”) recently revised its regulations concerning overtime pay for many exempt, white-collar workers. DOL’s new regulations raise the salary threshold for these exempt workers from $23,360 per year to $35,568 per year ($684 per week) effective January 1, 2020. What many employers do not know is that Pennsylvania’s Department of Labor and Industry also revised its regulations under Pennsylvania’s Minimum Wage Act to raise the salary threshold even higher, to $45,500 per year in 2022. However, in a compromise reached with the Pennsylvania Senate, Governor Wolf agreed to withdraw the proposed overtime regulations in favor of a Senate bill that would increase Pennsylvania’s minimum wage from $7.25 per hour to $9.50 per hour by 2022. It remains to be seen what will happen to that bill in Pennsylvania’s House of Representatives in 2020. Certain state representatives and interest groups believe the minimum wage was not raised high enough, while others oppose any increase. If the House does not pass a bill raising Pennsylvania’s minimum wage by the end of 2019, the Governor has indicated that he will ask that the overtime regulations be approved in January, 2020.

What does this mean for Pennsylvania employers? 

As of now, Pennsylvania’s minimum wage remains $7.25 per hour which is consistent with the minimum wage established by the DOL. However, given the significant push by many legislators and interest groups to raise Pennsylvania’s minimum wage, employers must be mindful to any change in Pennsylvania’s Minimum Wage Act. We will keep you posted on any action in the Pa. House which might affect your business. No matter what, Pennsylvania employers must be in compliance with the new federal overtime regulations setting the minimum salary for white-collar workers at $35,568 per year in order for those workers to be exempt from mandatory overtime pay.

Calculating Overtime Pay for Non-Exempt Employees:

The Pennsylvania Supreme Court just issued a decision confirming that Pennsylvania law does not permit employers to use the Fluctuating Work Week method (FWW) when calculating overtime pay for non-exempt, salaried workers. The FWW method has long been an accepted method for calculating overtime under the Fair Labor Standards Act (“FLSA”), but the Pennsylvania Supreme Court ruled that slight differences in language of Pennsylvania’s Minimum Wage Act precludes using the FWW method in Pennsylvania.

In order to calculate overtime pay for non-exempt salaried employees, the employer must first determine the employee’s regular rate for a given week by dividing the employee’s salary by the hours worked. For details on how to calculate overtime pay, see below:

Assume a non-exempt employee earns a $1,000 weekly salary.  If the employee works 50 hours in one week, the employee’s regular rate that week is $20 per hour ($1,000 divided by 50), whereas if the employee works 60 hours in another week, the employee’s regular rate that week is $16.67 per hour ($1,000 divided by 60).  Under the FWW method, in addition to the employee’s salary, the employee would be entitled to overtime pay calculated by multiplying half the regular rate by the overtime hours.  For instance, assuming a $1,000 weekly salary and a 50-hour week, the employee would earn $100 of overtime pay ($10 per hour for each of the 10 overtime hours worked) for a total weekly compensation of $1,100.  However, Pennsylvania employees are entitled to significantly more under Pennsylvania’s required method of calculating overtime pay.  Rather than using a .5 multiplier for the overtime hours, employers must use a 1.5 multiplier.  In the foregoing example, the employee’s overtime pay is $300 ($30 per hour for each of the 10 overtime hours), for a total weekly compensation of $1,300.  For employers caught unaware by the differences in the allowed calculation of overtime pay for non-exempt salaried employees, this could be very expensive.

What You Need to Do Now:

Pennsylvania employers must follow not only the federal laws governing compensation, mainly the FLSA and its interpretative regulations, but also Pennsylvania law. Failure to do so may cost employers dearly. We will continue to monitor legislative changes on the federal and state level and keep you posted. We realize that these are complicated and fluid matters so if you have any questions or want further information, please do not hesitate to contact Ethan O’Shea at EOshea@HRMML.com, 215-661-0400, who chairs our Employment Law practice.

Questions Every Business Must Ask

Q. Has your business recently reviewed its legal structure to determine whether it is set up in the most advantageous manner for legal and tax purposes, considering recent developments and changes in the law?

Q. Do the owners of your business have a current, updated buy-sell agreement which controls how ownership interests in the business are to be transferred in the event of an owner’s death, disability or termination of employment?

Q. Have the owners of your business developed a succession plan to define how ownership and authority will transition upon the death or retirement of the present owners?

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