PA Raising Salary Threshold for White Collar Exemptions—Déjà Vu All Over Again … or Worse?

Jason E. Reisman

Here we go again, Pennsylvania employers, but this time on the local front, rather than nationally. Following up on Governor Wolf’s announcement in January that Pennsylvania needed to “modernize” its outdated wage and hour regulations—last updated in 1977—governing the executive, administrative, and professional exemptions under the Pennsylvania Minimum Wage Act, the Pennsylvania Department of Labor and Industry (“DOLI”) published proposed new regulations at the end of June.

The DOLI’s proposal includes significantly raising the minimum salary threshold required for these “white collar exemptions”—sound familiar? Worse yet, these proposed changes will ultimately increase the new salary minimum above the threshold originally proposed for the Fair Labor Standards Act (“FLSA”) by the U.S. Department of Labor (which, as you undoubtedly recall, was enjoined and then struck as over-reaching by an Obama-appointed federal judge in Texas).

Here’s how the DOLI proposes to phase in the new salary increases:

  • $610 per week ($31,720 annually) upon publication of final regulations (expected in 2019);
  • $766 per week ($39,382 annually) effective one year after publication;
  • $921 per week ($47,892 annually) effective two years after publication;
  • Automatically reset the minimum salary to be equivalent to the 30th percentile of full-time non-hourly employee earnings for the Northeast Census region; and (of course, the kicker!)
  • Automatic updates every three years thereafter (on January 1st each time).

Ugh! Remember, the current salary minimum is $455 per week ($23,660 annually) under the FLSA. Since employers must comply with whatever the more restrictive requirement is, the current Pennsylvania minimums ($155 or $250 per week) are effectively irrelevant. The above $921 ($47,892 annually) figure is more than double the current threshold and exceeds the originally proposed federal salary level of $913 ($47,476 annually)! The governor said that by 2021 the new salary threshold will open the door to overtime pay for another 460,000 Pennsylvanians—that’s approximately one in eight Pennsylvania workers.

Is there any silver lining? Well, not really (in my humble opinion). Yes, the DOLI included a provision that allows up to 10 percent of the new salary threshold—similar to the originally proposed federal changes—to consist of “non-discretionary bonuses, incentives or commissions,” as long as they are paid at least quarterly. But is 10 percent really material or useful? Doubtful—but, we’ll take what we can get.

Is that all? Of course not! Why stop there? When you’re on a roll, keep going—the governor had also said that the DOLI would “clarify” the duties requirements for the Pennsylvania white collar exemptions to better align them with the FLSA standards. And, the DOLI has at least in some sense done that, by cleaning up the dated concept of maintaining a “short” and “long” test for each exemption—a structure that matched the model set up by the FLSA regulations (the federal rules eliminated the dual-test model and moved to a single test for each exemption with its 2004 revisions). Now, Pennsylvania will do the same.

The concern is that, despite the goal to better “align” with the FLSA regulations, Pennsylvania will continue to be different in some regards, such as requiring exempt executive employees to “customarily and regularly exercise discretionary powers” (which is not required by the FLSA) and requiring exempt administrative employees to “customarily and regularly” exercise discretion and independent judgment (while the FLSA regulations only say their primary duty must “include” this exercise). Though perhaps seemingly minor, how will these differences be construed by the courts? How will plaintiffs’ lawyers leverage and/or exploit them?

Also, Pennsylvania still offers no computer professional exemption or highly compensated employee exemption—both of which exist under the FLSA regulations. Pennsylvania’s outside sales employee exemption doesn’t match its counterpart under the FLSA.

This is your chance to express your point of view—the public comment period for these proposed new regulations is open through July 22, 2018 (and is likely to be extended by 60 days). If you’re interested in providing comments, please contact Bryan Smolock, Director, Bureau of Labor Law Compliance, Department of Labor and Industry, 651 Boas Street, Room 1301, Harrisburg, PA 17121, (717) 787-0606, bsmolock@pa.gov.

Once all comments are submitted and reviewed, the DOLI will publish “final” regulations. No one can predict whether or how much the new final regulations will differ from the currently proposed version. That depends on the comments received and how persuasive they are, I imagine.

Even if you don’t submit your comments, it’s time to start thinking about your currently exempt workforce and how many will fall below the new salary thresholds that are coming. Then, you can begin planning—as you undoubtedly did back in 2016 for the then-new FLSA regulations—as to whether you will give raises to meet the new threshold or reclassify currently exempt employees with salaries below the new threshold to be non-exempt (and therefore required to track time and receive overtime pay). Oh, the fun that lies ahead. Hang in there—we’ll be here with you every step of the way!

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