Pennsylvania Wage And Hour Regulation More Costly Than The Federal
In the last EALERT, we discussed the change in the federal Fair Labor Standards Act (“FLSA”), increasing the salary threshold for the so-called White-Collar exemptions from the payment of overtime for Executive, Administrative and Professional employees to $684 weekly effective January 1, 2020. However, as you may already know, employers must comply with both the FLSA and the state wage and hour law, which ensures that the employee receives the more favorable treatment under either federal or state law. In some instances, the federal law is more favorable to the employee. In other instances, the state law is more favorable to the employee.
During the consideration process for the FLSA regulation, the drafters decided to temper the salary increase. The drafters also decided to drop the escalation of the salary threshold that was planned for 2021, 2022, and every three years thereafter. The newly proposed Pennsylvania regulation to increase the salary threshold for the Pennsylvania Minimum Wage Act (“PMWA”) will increase that threshold to the federal level of $684 whenever the Pennsylvania regulation is published as a Final-Form Rulemaking in the Pennsylvania Bulletin. (In actuality, the first increase will occur on January 1, 2020 under the Federal Regulations, unless the Pennsylvania regulation is finally adopted prior to that date). However, the Pennsylvania regulation, unlike the federal, will, if adopted, continue the salary threshold increases above the federal levels in 2021 and 2022, and again every three years thereafter. This is a major change, which is expected to add over $5,000 each year to the salary threshold in Pennsylvania for 2020, 2021 and 2022. It is more difficult to accurately estimate the increases expected in 2025 and every three years thereafter because that is based on a percentile figure of reported salaries in the three exempt categories (executive, administrative and professional) in Pennsylvania.
The Pennsylvania Regulation proposes an increase from:
$684 to $780 one year after publication; and
$780 to $875 two years after publication; and
$875 to an unspecified rate based on the 10th percentile of Pennsylvania workers in those positions three years after publication; and
An increase to the 10th percentile of Pennsylvania workers in those positions every three years thereafter.
The 10th percentile rates will be determined by the Department of Labor and Industry at a meeting 60 days in advance of the effective date of the increase, and published in the Pennsylvania Bulletin at least 30 days in advance of the effective date of the increase.
As a practical matter, an employer may be compliant with the federal regulations in 2021 using a $684 salary threshold, but out of compliance with the Pennsylvania regulation at that time or thereafter. The need for an employer to stay apprised to the new published rates in order to remain in compliance is likely to be burdensome and confusing for many employers. Additionally, the Pennsylvania regulation may increase the salary threshold for the second time on an unexpected date rather than January 1 or July 1, depending upon the date of the Final-Form Rulemaking.
Identical to the federal regulation, Pennsylvania only allows 10% of the salary threshold amount to be satisfied by the payment of non-discretionary bonuses, incentives and commissions, whether paid annually or more frequently. The employer is allowed to make one annual “catch up payment” to assure that the sum of the salary plus the non-discretionary bonus, incentive and commission payments equals at least 52 times the weekly salary amount required, initially $35,568.
We do applaud the portion of the Pennsylvania regulations that bring the three overtime exemptions for Executive, Administrative and Professional employees closer to the federal exemptions for those categories, but note that the FLSA still has computer and highly-compensated employee exemptions from overtime, which are not replicated under the PMWA. The updating of language to “worker with a disability” rather than the archaic “handicapped” is appropriate.
Now is the time to voice your opinion. The House and Senate Labor Committees will also review the Final Regulation prior to consideration by the Independent Regulatory Review Commission (“IRRC”). IRRC will consider the Pennsylvania Final regulation at its meeting on November 21, 2019. IRRC will not consider comments within the 48 hour blackout period before the meeting. However, that IRRC meeting is open to the public and members of the public may offer comments if they attend in person. The proceedings may also be monitored at this link. IRRC may approve or disapprove the Final Regulation on November 21, 2019, but does not have the authority to amend the regulation.
Bottom Line: The Pennsylvania regulation, if adopted, by escalating the salary threshold beyond the federal requirement, will add more confusion to an already complicated area of wage and hour law and increase the “Compliance Gap” between FLSA and the PMWA. It is expected to be particularly tough on Pennsylvania’s small and medium sized businesses, non-profits and religious/private schools because the Pennsylvania salary threshold continues to increase well beyond its federal counterpart. Pennsylvania’s new regulation is only one step away from adoption.