If an employee in Pennsylvania is paid a salary, as opposed to by the hour, that employee is not eligible for overtime no matter how low the salary or how high the number of hours he or she works in a particular week, right? Wrong! According to testimony on September 5, 2018, by senior members of the Wolf administration’s Department of Labor and Industry (DLI) before the Pennsylvania House Labor and Industry Committee, many Pennsylvania employers either do not know—or do not follow—the law. All salaried employees who are paid less than a certain threshold amount must be paid overtime. And even higher-salaried employees can qualify for overtime if their job duties do not fit within one of the three so-called “white collar” exemptions: the executive exemption, the administrative exemption, or the professional exemption.
While the issue of who is exempt from payment of overtime is present under both federal law (the Fair Labor Standards Act (FLSA)) and state law (the Pennsylvania Minimum Wage Act (PMWA)), the two laws are not in sync. Currently, the FLSA threshold below which salaried employees must be paid overtime is $455 per week ($23,660 annualized). Because this amount is greater than that currently required by the PMWA, employers must comply with the FLSA’s salary threshold requirements. However, the FLSA does not override the PMWA in situations where the PMWA is more generous than the FLSA. Where it is so, Pennsylvania employers are required to comply with the PMWA. Ignorance of the law is no excuse; Pennsylvania employers are expected to know which law applies to each situation and to make sure that their personnel are compensated accordingly.
Pennsylvania Overtime Law and the Proposed Regulations
When the PMWA became law in 1968, it provided that the secretary of the DLI has the power to issue regulations interpreting the PMWA. In 1977, the DLI issued its first set of regulations, which included rules regarding overtime. According to testimony at the September 5 hearing by Secretary of the DLI W. Gerard Oleksiak and by Deputy Secretary for Safety and Labor-Management Relations Jennifer Berrier, when the salary threshold in the 1977 regulations first went into effect, about 60 percent of salaried Pennsylvania employees were eligible for overtime. Today, because the threshold has not been raised, the figure is just seven percent.
In 2017, Governor Tom Wolf convened something called the Middle Class Task Force, which held meetings around the commonwealth to hear from interested parties about whether the 1977 regulations should be updated. The result was a set of proposed amendments to the overtime sections of the 1977 regulations, announced by the DLI in June of 2018. One thousand comments were submitted by the public during the ensuing 60-day comment period, with 60 percent being favorable.
The goals of the proposed DLI overtime regulations are twofold:
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Modernize the PMWA salary threshold. In 1977, that threshold was $250 per week maximum (or $13,000 annualized). The DLI proposal is to increase the PMWA threshold to $610 per week (or $31,720 annualized) when the final regulations are published; to $766 per week (or $39,832 annualized) one year after publication; and to $921 per week (or $47,892 annualized) two years after publication. Then, three years after publication, and on January 1 every third year thereafter, the salary threshold would automatically reset, using a formula derived from figures published by the U.S. Department of Labor, Bureau of Labor Statistics.
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Streamline the so-called “duties tests.” Under the duties tests, workers earning more than the threshold salary can still be eligible for overtime (i.e., nonexempt) if their job duties do not qualify them for the executive, administrative, or professional exemptions. The DLI’s proposed regulations would bring Pennsylvania’s duties tests closer to the federal version of the duties tests used with the FLSA.
The September Hearing
Representative Rob Kauffman (R-Franklin) scheduled the September 5 hearing to consider the possible impact of the DLI’s proposed regulation on employers. As pointed out by the Pennsylvania American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) in news releases issued after the hearing, no employees or labor representatives were invited to testify at the hearing, which lasted for more than two hours.
The hearing was conducted in two parts. First, the committee heard from DLI Secretary Oleksiak and Deputy Secretary Berrier. They explained the rationale for the proposed amendments, principally, that the PMWA salary threshold has not been raised in 40 years, which they argued is to the detriment of Pennsylvania’s middle class workers. Secretary Oleksiak and Deputy Secretary Berrier were asked what power the DLI would have to enforce its proposed overtime regulations. They said that the DLI would have the authority to recover from an employer the amount that the employee had been underpaid but would not have the authority to levy fines. Deputy Secretary Berrier also said that the Pennsylvania Whistleblower Law would not protect a complainant. She further said that she would have to look into whether the DLI would have the authority to prevent and/or punish retaliation by the employer against the complainant.
In the second part of the hearing, the committee heard from six private sector witnesses, all of whom expressed concerns about the impact of the proposed regulations on Pennsylvania businesses—especially small and nonprofit employers. These witnesses were: Kathy Speaker MacNett, Esq., SkarlatosZonarich LLC; Director of Human Resources Elizabeth Hays, MHY Family Services; General Counsel and Vice President of Legal Affairs Meredith Bollheimer, Mercyhurst University; President Sky Fogal, Skirmish Paintball; Senior Vice President and Chief Strategy Officer Leah Yaw, Devereux Advanced Behavioral Health; and Robert McCafferty, North Country Brewing Company.
Some of the concerns expressed by the private sector witnesses were the following:
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Pennsylvania’s overtime regulations should track those under the FLSA. The U.S. Department of Labor is currently studying whether to revise its FLSA overtime regulations. Complexity and confusion are bad for business. Adopting the DLI’s proposed regulations before the DOL has finished its study will increase the chances of a “compliance trap” for employers that will be faced with two different sets of overtime rules.
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If the salary threshold is increased as the DLI proposes, small businesses may not be able to afford to pay more wages and may have to reduce salaried workers to minimum wage, lay people off, or even close. In response, Representative Dan Miller (D-Allegheny) pointed out that low-salaried employees often have to turn to public assistance to sustain themselves or their families. He argued that unless the salary cap is raised so that more workers can qualify for overtime, the middle class will continue to erode and there will be increasing need for government/taxpayers to provide the assistance that these working Pennsylvanians need but cannot afford.
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Charities and nonprofit human services providers could not absorb increased wage costs unless there was a commitment from government funders to increase their level of support. Alternatively, these organizations should be exempt from the new regulations, the witness argued.
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The proposed regulations create “unfunded mandates.” Employers may not be able to cover these costs by raising prices. Opponents argue that the DLI’s position that businesses can cope by adjusting their staffing and payroll practices is unrealistic and unworkable.
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Salaried workers may perceive their status as being higher than that of hourly workers and might perceive being converted to hourly compensation as a demotion.
There was no discussion at the end of the hearing about what will happen next regarding legislation. The DLI has two years to issue the revised regulations in final form. In the meantime, the Pennsylvania Independent Regulatory Review Commission, created by law in 1982 to review commonwealth agency regulations to assure compliance with certain criteria, will study the proposed regulations.
