Employers likely recall the ill-fated federal overtime rule that was proposed during the Obama administration and was struck down last year. Even though the changes to the Fair Labor Standards Act’s overtime salary threshold never came to fruition at the federal level, Pennsylvania employers should be prepared for possible changes at the state level.
The Pennsylvania Department of Labor and Industry has proposed regulatory changes to the Pennsylvania Minimum Wage Act that could go into effect next year. The proposed regulations would increase the salary threshold at which employees who are subject to administrative, executive, or professional exemptions must be paid to be exempt from overtime. The salary threshold would incrementally increase as follows: (1) $610 per week ($31,720 per year) in 2019; (2) $766 per week ($39,832 per year) in 2020; and (3) $921 per week ($47,892 per year) in 2021. Beginning in 2022, the salary threshold would be set to the 30th percentile of weekly earnings for full-time salaried workers in the Northeast census region. The threshold would change every three years.
Pennsylvania’s current salary threshold of $250 per week ($13,000 per year) is far below the federal rate of $455 per week ($26,660 per year).
After the proposed regulations were publicized, the Independent Regulatory Review Commission (“IRRC”) solicited public comments on the proposed rulemaking. On September 21, 2018, the IRRC issued its comments on Pennsylvania’s proposed rule changes.
The IRRC’s comments point out key weaknesses in the proposed regulations. Generally, the proposed rule’s stated purpose of aligning the Pennsylvania regulations with federal regulations falls short of actually doing so. For instance, the proposed Pennsylvania rule lacks the following exemptions that are part of the federal overtime rule: highly compensated employees, outside sales, certain computer employees, business owners under the executive exemption, and employees of educational establishments under the administrative exemption. The disparity between the state and federal regulations can lead to confusion for employers as they strive to comply with both sets of rules.
Additionally, the IRRC shared that many employers have expressed concern about the potential negative economic impact of the proposed rule. Nonprofit and higher education employers in particular estimated that their costs of compliance would be substantial. Nonprofit organizations, local governments, and other entities that rely on private donations, tax dollars, or government grants have limited resources to expend on compliance efforts. Many employers would not likely increase salaries to the proposed levels and instead would have to convert currently-exempt salaried workers to hourly workers or lay off employees. As such, the rule could have a negative impact on employee morale and workplace flexibility and could disrupt Pennsylvania’s economy.
The IRRC essentially concluded that the proposed Pennsylvania regulations require additional language to clarify certain provisions. Moreover, rather than the rule going into effect immediately upon publication, employers may need more time to adjust their business practices to comply with this rule.
The IRRC also questioned the timing of the Pennsylvania amendments in light of the status of potential changes to the federal overtime regulations. The U.S. Department of Labor is now seeking public input on the federal overtime rule. Depending on when the Pennsylvania regulations go into effect and what happens at the federal level, there is a likelihood that the federal and state regulations will be misaligned. The proposed Pennsylvania regulations do not address how they will handle future misalignments with the revised federal regulations.
It remains to be seen what will happen with the Pennsylvania overtime regulations. Just as employers were in a state of flux during the pendency of the Obama overtime rule, Pennsylvania employers, likewise, face a period of uncertainty. Pennsylvania employers are well-advised to closely monitor these potential changes because they could have a significant impact.