Minimum Wage/Salary Threshold
The Governor’s administration and the state legislature have entered a tentative deal for the legislature to pass a bill raising the state minimum wage, and, in exchange, the Governor’s administration would pull proposed regulations that, if passed, would raise the salary threshold for exempt employees to an amount substantially higher than under federal law.
We previously informed you that the U.S. Department of Labor had finalized a regulation raising the salary threshold for employees exempt under the white-collar exemptions, and that Pennsylvania had a pending proposed regulation that would increase the exemption salary threshold even further. (See our Employment Law Update of November 18, 2019.) If the state legislature agrees to raise the state’s minimum wage, the Governor’s administration has agreed to withdraw the proposed salary threshold regulation, with the requirement that such a regulation may not be revisited until 2023 at the earliest.
The minimum wage legislation, Pennsylvania Senate Bill 79, would raise the minimum wage from $7.25 to $8.00 per hour as of July 1, 2020, and then to $8.50 per hour on January 1, 2021, to $9.00 per hour on July 1, 2021, and to $9.50 per hour on January 1, 2022.
Fluctuating Workweek Method For Calculating Overtime
Is Not Available In Pennsylvania
Under federal law, employers may pay overtime to certain nonexempt workers whose hours fluctuate from week to week. Under the so-called “fluctuating workweek” method, by agreement between the parties, nonexempt employees may be paid a fixed weekly salary, regardless of the number of hours worked. This amount is divided by the actual number of hours worked in any particular week to get the base rate on which overtime will be calculated. Since the salary covers all hours, overtime is then paid at a rate of 0.5 times the base rate for all hours worked over 40 in one week, instead of 1.5 times the base rate.
A Pennsylvania Superior Court case had decided that the fluctuating workweek method was not available under Pennsylvania law. The Pennsylvania Supreme Court has affirmed this decision in Chevalier v. General Nutrition Centers, Inc., Nos. 22 and 23 WAP 2018 (Pa. Nov. 20, 2019). The Pennsylvania Supreme Court noted that neither the Pennsylvania Minimum Wage Act (which governs overtime under state law) nor its regulations allows for this method to be used to calculate overtime for nonexempt salaried or hourly employees.
New Regulations Clarify Calculation Of Regular Rate Of Pay
The Department of Labor has issued new regulations to clarify what payments to employees may be excluded in determining an employee’s regular rate of pay. Under the Fair Labor Standards Act, overtime payments are based on an employee’s regular rate of pay, which includes not only the employee’s wages, but also nondiscretionary bonuses and other remuneration to the employee.
The new regulations (29 C.F.R. §§ 778.202-203, 211-224, 304) clarify that, under federal law, the following need not be included in a calculation of regular rate of pay:
(1) Premium pay, such as for working more than eight hours in a day or for work on weekend days or holidays;
(2) Truly discretionary bonuses that are not required to be paid because of a contract or agreement;
(3) Gifts, Christmas and special occasion bonuses;
(4) Office coffee and snacks;
(5) Most benefit plan contributions;
(6) Reimbursement for expenses, including membership dues, if relevant to the employer’s business, as well as most business expenses;
(7) Payment for certain idle time, such as holiday, vacation, sick leave, failure to provide work, jury duty, funeral leave, and other similar leaves;
(8) Payment for unused leave;
(9) Show-up or reporting pay;
(10) Call-back or similar pay, unless such payments are prearranged, that is, that the extra work was anticipated and therefore reasonably could have been scheduled;
(11) Loans and advances from the employer;
(12) Parking spaces and payment for parking;
(13) The cost of on-the-job medical care;
(14) On-site medical treatment;
(15) Gym memberships, fitness classes and recreational facilities;
(16) Cost to the employer of providing wellness programs;
(17) Discounts on employer-provided retail goods and services;
(18) Employer-provided tuition benefits;
(19) Adoption assistance; and
(20) Compensation for hours not worked, such as meal times, unless the parties have agreed to include the hours as time worked.
Employers must follow state law when state law is more restrictive than federal law. While most of these classifications fall in line with the exclusions allowed under Pennsylvania law, not all of them do so. Counsel can assist you in determining whether a particular exclusion is allowed in Pennsylvania.
What Does This Mean For You? You will need to keep alert for further developments concerning minimum wage and the Pennsylvania salary threshold for exempt workers. It appears that Pennsylvania may not raise the salary threshold for exempt workers, but if it is not raised, the minimum wage will increase. The proposed minimum wage increases are incremental and will occur every six months, if passed, but are still well below the $15.00 per hour requested by some employee groups.
If you currently use a fluctuating workweek or similar method for paying overtime for any of your employees, you need to change the way you make overtime calculations for such employees and consider whether any back overtime payments need to be made.
Finally, you should review how regular rate of pay calculations are being made to see whether you need to change any of your methodology. If you have any questions on any of the above matters, please contact S. Whitney Rahman at firstname.lastname@example.org or (717) 509-7237, Grace C. Nguyen Bond at email@example.com or (717) 509-7226, or Jill M. Laskowitz at firstname.lastname@example.org or (717) 509-7261.
**This update is provided for informational purposes only and
should not be construed as legal advice or as creating an
attorney-client relationship where one does not already exist.**