Relief for Employers: New Pennsylvania Overtime Exemption Minimum Salary Requirements Repealed in State Budget Deal

By Adam R. Long on June 29, 2021

POSTED IN WAGE & HOUR

We do not often have good news to report for Pennsylvania employers in this blog.  The complexities associated with the employment laws, and the costs of non-compliance, continue to increase for employers seemingly with each passing year.  Today is one of those rare days when we bring good news.

Late last week, the Republican-controlled Pennsylvania legislature and Governor Wolf reached a final deal on the state budget for 2021-2022.  While annual state budgets typically do not impact employment laws for private employers in the Commonwealth, this one is an exception.

As part of the overall budget deal, Governor Wolf agreed to a provision repealing the Pennsylvania Minimum Wage Act (PMWA) regulations published in October 2020 that would have increased significantly the minimum salary requirements for the white-collar overtime exemptions under this law. We previously wrote about these regulations and the impact they would have on Pennsylvania employers.

As background, the PMWA is the state-law equivalent of the federal Fair Labor Standards Act (FLSA).  The PMWA’s requirements apply to essentially all employers in Pennsylvania.  The PMWA and FLSA both place minimum wage and overtime pay obligations on Pennsylvania employers.  While the laws’ requirements are similar, they are not identical.  Employers in Pennsylvania must meet the requirements of both laws to ensure compliance.  In areas where one law is more favorable to employees than the other, Pennsylvania employers must comply with the more employee-friendly requirements to avoid liability for unpaid minimum wages or overtime pay.

The DLI’s October 2020 overtime exemption regulations increased the minimum salary requirement for the PMWA’s white-collar overtime exemptions to $684 per week ($35,568 annually) on October 3, 2020, which matched the current level required by the FLSA.  However, they also were set to increase the minimum salary requirements under Pennsylvania law beyond the FLSA’s requirements as follows:

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

These regulations included additional automatic “adjustments” (i.e., increases) set to start in 2023.

What does this mean?  As of October 3, 2021, any employee in Pennsylvania classified as exempt under a white-collar exemption that has a minimum salary requirement who earns less than $780 per week would have needed to receive a salary increase to at least equal this amount or be reclassified as non-exempt (and made eligible for overtime pay) going forward.

The net result would have been more white-collar employees eligible for either a salary increase or overtime pay and the increased risk of liability for unpaid overtime for Pennsylvania employers.

Now, as a result of the broader budget negotiations, a one-sentence provision was placed in the budget-related legislation repealing these regulations, a little more than three months before the next minimum salary increase was set to take effect.

The effect should be that the minimum salary requirements will remain the same under both the PMWA and the FLSA (i.e., $684 per week ($35,568 annually)).  At least for the time being.  It is expected that the U.S. Department of Labor under the Biden administration may attempt to increase the FLSA’s minimum salary requirement for these exemptions.  The Obama DOL made a similar attempt to more than double the minimum salary requirements then in place in 2016, but those regulations ultimately were blocked by a federal court.

That, however, is possible bad news for employers best left for another day.  Today is a good news day.  Pennsylvania employers avoided an impending wage and hour compliance landmine, thanks to the always interesting annual budget negotiations.