Pennsylvania Employers May See Big Changes to Overtime Exemptions

SHRM opposes rapid, steep salary threshold increases

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Pennsylvania employers will have to comply with new overtime rules if proposed changes to the white-collar exemptions are finalized. Here's what employers need to know about the proposed regulatory changes.

Currently in the state, employees who are exempt from overtime under the administrative, executive or professional (white-collar) exemptions must be paid on a salary basis at a rate of at least $250 per week ($13,000 per year) and must perform certain duties.

The Pennsylvania Department of Labor and Industry has proposed incremental increases to the salary threshold as follows (assuming the regulations are finalized and published in 2019):

  • 2019: $610 per week ($31,720 per year).
  • 2020: $766 per week ($39,832 per year).
  • 2021: $921 per week ($47,892 per year).

In 2022, and every three years thereafter, the salary threshold would be automatically set to the 30th percentile of weekly earnings for full-time salaried workers in the Northeast census region.

Though the state's current salary threshold is far below the federal rate of $455 per week ($26,660 per year), the proposal would raise the threshold to just above the failed 2016 federal overtime rule's $47,476 salary level.

"The Pennsylvania regulations haven't been updated since the 1970s," noted Shannon Farmer, an attorney with Ballard Spahr in Philadelphia. Pennsylvania employers that are subject to the federal Fair Labor Standards Act (FLSA) currently must comply with the federal threshold for white-collar exemptions.

"Four decades is far too long for Pennsylvania's overtime regulations to remain stagnant," said acting Labor and Industry Secretary Jerry Oleksiak.

Opponents of the proposed regulation, however, say the increase is too much. The Society for Human Resource Management (SHRM) supports an updated federal salary level but believes that the 2016 rule's increase would have presented challenges for small employers, nonprofits, employers in certain industries and employers in certain geographic regions that tend to have lower costs of living.

A federal judge in Texas struck down the 2016 rule, finding that the U.S. Department of Labor (DOL) exceeded its authority when it nearly doubled the current salary threshold.  

"Pennsylvania regulators are risking litigation by following the same strategy the federal DOL pursued in 2016, which resulted in the court striking down that rule as regulatory overreach," said Nancy Hammer, SHRM's vice president of regulatory and judicial affairs counsel.

Exempt Job Duties

To fall under a white-collar exemption, employees must perform certain duties, such as those that require discretion and independent judgment. The Pennsylvania proposal would also make changes to the state's duties test.

Those familiar with the Pennsylvania Minimum Wage Act (PMWA) know that the state's law has a number of quirks that make it inconsistent with the FLSA, said Jennifer Betts, an attorney with Ogletree Deakins in Pittsburgh. While courts have largely analyzed the duties test under the PMWA in the same way they analyze the FLSA, there have been a number of differences in the statutory text for decades. 

[SHRM members-only toolkit: Determining Overtime Eligibility in the United States]

The Pennsylvania Department of Labor and Industry (DLI) indicated that the proposed changes to the duties test were designed to better align the state's law to the test under the FLSA.

"What's important to know, however, is that the proposed changes don't fully accomplish this objective," Betts added. Some key differences she noted are that the proposed changes:

  • Include language concerning requirements for meeting the white-collar exemptions that appear to impose heavier proof burdens on employers than under federal law.
  • Still do not incorporate a computer-professional exemption, which is available under the FLSA.
  • Do not recognize a highly compensated-professional exemption.
  • Do not harmonize the outside-sales representative exemption with the FLSA.

The Pennsylvania State Council of SHRM submitted a comment in opposition to the rule. "If the proposed changes become final before the new FLSA rule is finalized, one can anticipate an even greater chasm between federal and Pennsylvania law," the comment states. "Such a lack of alignment between federal and Pennsylvania law will leave employers struggling to implement inconsistent federal and state regulations in a legislative and regulatory environment that cries out for consistency."

What's Next?

The public comment period closed Aug. 22. Now the DLI must consider all the public comments and possibly make changes to the proposed regulations. The final rule is expected to be published sometime in 2019.

Meanwhile, it makes sense for employers to have their compensation department audit their workforce to determine who falls below the first salary threshold increase (of $610 per week) under the proposed regulations, Betts said. "Identifying employees who are close to this line will allow for some advanced planning and awareness to the extent that the proposed regulations become final."

The biggest thing that employers need to remember is that federal law sets the floor, and states can have more employee-friendly requirements, Farmer said. "Employers in Pennsylvania can't just assume that the state follows federal law and that they don't have any further obligations under state law," she added. "Employers need to look at both."

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