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Proposed Regulations Would Make More Pennsylvania Employees Eligible for Overtime

As you may recall, we wrote in January that Pennsylvania Governor Tom Wolf called on the state’s Department of Labor & Industry (“L&I”) to “modernize” the regulations for the “white-collar” overtime exemptions under the Pennsylvania Minimum Wage Act (“PMWA”), the state-law equivalent of the Fair Labor Standards Act (“FLSA”). Earlier this month, L&I answered the call and proposed regulations that would both significantly alter the salary thresholds and applicable duties tests for these exemptions.

Under L&I’s proposed regulations, the minimum salary threshold for the PMWA’s white-collar exemptions would rise to $31,720/year ($610/week) as of the final rule’s publication in the Pennsylvania Bulletin, which is expected to occur in 2019. The salary threshold would rise to $39,832/year ($766/week) one year after the final rule’s publication date and then to $47,892/year ($921/week) two years after the final rule’s publication date. These proposed salary thresholds far exceed the existing salary threshold of $23,660/year ($455/week) for the FLSA’s white-collar exemptions. Although the proposed salary threshold of $921/week is very similar to the proposed $913/week threshold for the FLSA’s white-collar exemptions, which was struck down by a federal court last year, employers should not assume that the proposed PMWA regulations will meet a similar fate. If L&I’s proposed regulations go into effect, the salary threshold for the PMWA’s white-collar exemptions would automatically increase on the third anniversary of the final rule’s publication date and January 1 of every third year thereafter.

L&I’s proposed regulations would also change the duties tests for the PMWA’s white-collar exemptions. L&I has stated that the proposed changes would align the duties tests for the PMWA’s white-collar exemptions with their counterparts under the FLSA. It is clear, however, that L&I has missed the mark in this regard. For example, L&I’s proposed regulations would require exempt executive employees to “customarily and regularly exercise discretionary powers,” which they are not required to do by the FLSA. They also would require exempt administrative employees to “customarily and regularly” exercise discretion and independent judgment with respect to matters of significance, whereas the FLSA only requires such an employee’s primary duty to “include” such exercise.

L&I’s proposed regulations, if enacted in their current form, would impose a significant burden on Pennsylvania employers, as it is expected that the proposed salary threshold increases alone could impact as many as 460,000 employees in the coming years. Employers must remember that, because the PMWA and FLSA are largely similar but not identical, they must meet the requirements of both laws to stay complaint. As a practical matter, this means that in areas where one law is more pro-employee than the other, an employer must meet that more stringent requirement.

In light of the significant changes proposed by L&I, Pennsylvania employers should consider several courses of action. As an initial matter, employers have until July 23, 2018 to submit written comments to L&I regarding the proposed regulations. In addition, before the final rulemaking is announced at some point in 2019, employers must identify employees affected by the new regulations and decide whether to increase their salaries so as to maintain their exempt status or, alternatively, reclassify them. Employers may also wish to consider changing policies, job duties, schedules, and staffing levels.

As always, we will be sure to update you on any additional developments in this area as they arise. For questions about this or any other labor and employment topic, please do not hesitate to contact a member of our Labor and Employment Department.