Pennsylvania Raises Salary Threshold, Updates Duties Tests with New Overtime Rule

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.

UPDATED SALARY THRESHOLD

The new minimum overtime salary threshold under the PMWA will be $45,500, with the increase phased in three steps:

  • On October 3, 2021, the threshold will increase from $684 per week, or $35,568 annually, to $780 per week or $40,560 annually.
  • On October 3, 2022, the threshold will increase to $875 per week or $45,500 annually.
  • The salary threshold will then automatically be reset every three years starting October 3, 2023 based on the 10th percentile of wages in the exempt occupations in Pennsylvania, utilizing a Pennsylvania-specific data set.

Under the rule, an employer may satisfy 10% of the salary amount through payment of non-discretionary bonuses.

REVISED DUTIES TESTS

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.”

PRACTICAL CONSIDERATIONS FOR EMPLOYERS

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.

The full article in its original form can be found here.

John Lee is a partner at Morgan Lewis (Philadelphia office). His practice focuses on complex employment litigation involving allegations of race and gender discrimination, wage and hour claims, as well as challenges to employer background check practices.

Michael J. Puma is a partner at Morgan Lewis (Philadelphia office). He focuses on complex labor and employment litigation, particularly wage and hour class and collective actions, and noncompete and trade secrets litigation throughout the United States.

Shane C. O’Halloran is an associate at Morgan Lewis (Philadelphia office). He is part of the firm’s team of lawyers that advises clients on labor and employment issues, including international counseling, management relations, labor disputes, and compliance with federal, state, and local employment laws.

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