Effective October 3, 2020, the Pennsylvania Department of Labor & Industry (L&I) has updated Pennsylvania’s overtime rules to increase the salary threshold for qualifying under the Pennsylvania Minimum Wage Act (PMWA) as an exempt executive, administrative, and professional employee. The rule also brings the duties tests for executive, administrative, and professional workers into closer alignment with tests under the Fair Labor Standards Act (FLSA). The L&I estimates that the new rules will extend overtime eligibility to 143,000 employees.
The new minimum overtime salary threshold under the PMWA will be $45,500, with the increase phased in three steps:
Under the rule, an employer may satisfy 10% of the salary amount through payment of non-discretionary bonuses.
The updated rule also revises the duties tests applied to determine whether an employee qualifies as exempt from the PMWA’s overtime provisions under the executive, administrative, and professional exemption. Specifically, the rule removes the requirement that executive employees “customarily and regularly” exercise discretionary powers, and the requirement that administrative employees “customarily and regularly” exercise discretion and independent judgment. The rule now requires, as to administrative employees, that their primary duty “includes” exercising discretion and independent judgment, and as to executive employees, that their “primary duty is management of the enterprise or of a customarily recognized department thereof.” L&I intended these changes to bring the duties tests under the PMWA into closer alignment with the FLSA’s test, which uses the word “includes.”
Employers should review their employees’ job duties and classifications to ensure compliance with the new duties tests under the PMWA. It is important to keep in mind that while L&I’s intent was to harmonize the PMWA’s duties tests with those under the FLSA, there are still important differences between the two, and therefore employers must consider both tests in assessing employee status. For example, under the PMWA, the “outside sales” exemption is assessed on a quantitative basis and requires that employees spend more than 80% of their time making sales, whereas under the FLSA, the “outside sales” exemption is assessed on a qualitative basis and requires that employees’ “primary duty” is making sales. There are also industry-specific differences, including in the education industry: the PMWA does not expressly extend the administrative exemption or professional exemption, as the FLSA does, to employees whose primary duties are performing administrative functions or teaching at an educational establishment.
And while the salary threshold changes will not exceed the current salary threshold under the FLSA until 2021, employers should review employee compensation levels to assess whether, and how, compensation will need to be revised or if reclassification is warranted to ensure compliance.
Morgan Lewis’s team of lawyers assists in counseling employers to ensure their compensation practices are in line with Pennsylvania and federal law, and litigating overtime claims when they are brought.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Christopher K. Ramsey
Richard G. Rosenblatt