Employers: HERE WE GO AGAIN: NEW OVERTIME REGULATIONS WILL SOON BE HERE! Are you ready?

by Ethan R. O’Shea

If you have read our prior Newsletters and Legal Alerts in recent years, then you know that the United States Department of Labor (“DOL”) and Pennsylvania’s Department of Labor have gone back and forth regarding overtime regulations, and specifically how much a salaried employee must be paid in order to be exempt.  

In 2016, the DOL passed regulations raising the salary threshold from $455 per week ($23,360 per year) to $913 per week ($47,476 per year). However, following a legal challenge, those regulations were struck down. In 2019, new regulations were enacted raising the salary threshold to $684 per week ($35,568 per year).  

Early in 2020, the Pennsylvania Department of Labor proposed regulations that would raise Pennsylvania’s minimum salary threshold under the Pennsylvania Minimum Wage Act to $875 per week ($45,500 per year). However, in the summer of 2021, Governor Wolf agreed to repeal the new overtime regulations, and therefore the current Federal salary threshold of $684 per week ($35,568 per year) applies to Pennsylvania workers. The matter, however, is not resolved.  

Several months ago, the DOL announced that it was publishing new proposed regulations to the white-collar exemptions and those regulations are expected at any time. It is widely anticipated that the minimum salary threshold will be increased to at least $47,476 per year, and likely higher. There may also be a provision to create an automatic adjustment to that number, whatever it might be, tied to the Consumer Price Index or another economic indicator.  There is also speculation that the duties tests for executive, administrative and professional exempt employees may be altered. All of this is conjecture, but it appears certain new proposed regulations are imminent.  

New Rules in Pennsylvania

On a related note, in August of 2022, new regulations under Pennsylvania’s Minimum Wage Act took effect. These regulations codified a Pennsylvania Supreme Court case issued in 2019 that held Pennsylvania employers cannot use the fluctuating work week method to calculate overtime pay for non-exempt, salaried workers.

The fluctuating work week method has beenand still is, an accepted method of calculating overtime pay under the Fair Labor Standards Act, a Federal law, but is precluded under Pennsylvania’s Minimum Wage Act. In order to calculate overtime for non-exempt salaried employees when those employees work more than 40 hours in a work week, the employer must add all remuneration paid to the employee during a work week, divide that total by 40 hours to calculate the regular rate, and then multiply that regular rate by 1.5 in order to determine the overtime premium. Assume, for example, a non-exempt employee earns a $1,000 weekly salary and worked a 50-hour week. Under the fluctuating work week method, the employer would divide $1,000 by 50 to arrive at a regular rate of $20 per hour and an overtime rate of $30 per hour.  However, under what is now codified under the Pennsylvania Minimum Wage Act, the employer must divide $1,000 by 40 which leads to a regular rate of $25 per hour and an overtime rate of $37.50 per hour. The employee must be paid $1,375.00 for the week.

What Employers Should Do:

In light of Pennsylvania’s new, if not game-changing regulations, and in anticipation of DOL’s overtime regulations, now is a good time for all employers to:

  • make sure they are classifying and paying their employees correctly,
  • examine their employee job descriptions to determine who is appropriately classified as an exempt employee and who is not; and,
  • make sure they are keeping accurate time records and paying all their employees in accordance with both Federal and State law.

It is better to be proactive than wait for an aggrieved employee to bring an action, or even worse a collective action, and pay the price.

To discuss this issue more, please contact Ethan O’Shea, the chair of our Employment Law practice. He is ready to help.