On October 3, 2020, new overtime rules went into effect, expanding Pennsylvania’s Minimum Wage Act regulating overtime pay. The legislation increased the minimum salary threshold to still be eligible for overtime for certain Pennsylvania workers in executive, administrative, and professional occupations.

The Pennsylvania Minimum Wage Act provides an exemption from both minimum wage and overtime pay for employees employed in a bona fide executive, administrative, or professional capacity. To qualify for the exemption, employees must meet specific tests regarding their salary and their job duties.

Under the federal Fair Labor Standards Act (FLSA), to qualify for the white-collar overtime exemptions, executive, administrative, and professional employees must be paid a minimum guaranteed salary of $684 per week ($35,568 annually). The new Pennsylvania overtime rules bring the state salary threshold up to the current federal level and set the salary threshold to increase as follows:

• $780 per week, $40,560 annually on Oct. 3, 2021; and
• $875 per week, $45,500 annually on Oct. 3, 2022

The Pennsylvania regulation provides automatic adjustments every three years to a rate equal to the 10th percentile of Pennsylvania workers in the exempt, executive, administrative, and professional classifications, beginning in 2023.

Effective immediately, the new overtime rules also allow up to 10 percent of the salary threshold to be satisfied by nondiscretionary bonuses, incentives, and commissions that are paid annually, quarterly, or more frequently.

The new overtime rules also amended the duty tests for executive, administrative, and professional workers to closely track the FLSA white-collar exemptions and make it easier for employers to comply with the law. Although this was intended to improve alignment between state and federal rules, there are still significant differences between Pennsylvania and federal requirements. For example, Pennsylvania law does not contain an exemption for highly-compensated employees or certain computer professionals, as provided under FLSA.  In addition, FLSA provides exceptions so that teachers, lawyers, and doctors can qualify as exempt professionals without meeting any minimum salary. Under Pennsylvania rules, however, these professionals must meet the minimum salary threshold.

An important reminder - when determining the classification for an employee, the salary threshold is just one requirement of the overtime exemptions. An exempt employee must also perform the job duties outlined in the duties test for the exemption. Determining eligibility for an exemption requires a review of the job description. A job title and/or paying an employee a salary does not automatically make them exempt from overtime.

What should employers do now?

• With planning and budgeting, employers will want to examine the exemptions they claim for their employees closely. Job descriptions should be reviewed to ensure that all exemptions continue to be applicable under both state and federal regulations with respect to salary levels and job duties.
• Analyze the impact of several options:
  • Raising salaries of exempt employees to meet the salary threshold or reclassifying as non-exempt and paying overtime when applicable
  • Hiring additional employees to reduce overtime exposure
  • Reassigning work
  • Outsourcing

Please contact Laura Stover with any questions.