Pennsylvania Rule Increasing White Collar Exemption Salary Threshold Takes Effect

The Pennsylvania Department of Labor and Industry (DLI) published its final rule to substantially increase the salary threshold for qualifying as an exempt Executive, Administrative and Professional (EAP) employee under the Pennsylvania Minimum Wage Act (PMWA). The regulation increases the EAP salary threshold under Pennsylvania law to:

  • $684 per week ($35,568 annually) effective October 3, 2020;
  • $780 per week ($40,560 annually) effective October 3, 2021; and
  • $875 per week ($45,500 annually) effective October 3, 2022.

Effective October 3, 2023 (and each third year thereafter), the salary threshold would reset automatically to the 10th percentile of Pennsylvania workers who work in exempt EAP classifications. While the first increase merely aligns the PMWA’s salary threshold with its federal Fair Labor Standards Act (FLSA) counterpart, the PMWA’s salary threshold will soon significantly eclipse the FLSA standard.

The final regulation provides that an employer may satisfy up to 10% of the salary amount by the payment of nondiscretionary bonuses, incentives and commissions that are paid annually or more frequently.1 At the end of the year (which period may be any 52-week period as defined by the employer), if the sum of the employee’s salary and any nondiscretionary bonuses, incentives and commissions do not equal at least 52 times the weekly minimum salary amount, the employer may make one final payment sufficient to achieve the required level, so long as the payment is made no later than the next pay period after the end of the year.

The final regulation also makes modest revisions to the duties test, designed to more closely align the PMWA with its FLSA counterpart. For example, the rule:

  • eliminates the requirement that executive exempt employees “customarily and regularly” exercise discretionary powers; and
  • eliminates the requirement that administrative exempt employees “customarily and regularly” exercise discretion and independent judgment (instead requiring that their primary duty includes the exercise of discretion and independent judgment with respect to matters of significance).

While DLI also committed to “look to Federal law for guidance for interpreting its regulations,” the rule differs from existing federal regulations in significant ways. For example, the rule does not:

  • include the FLSA’s acknowledgement that “concurrent performance” of exempt and nonexempt work does not disqualify an employee from the executive exemption (29 C.F.R. § 541.106);
  • include any version of the FLSA’s regulation extending the administrative exemption to employees whose primary duty is performing administrative functions directly related to academic instruction or training in an educational establishment (29 C.F.R. § 541.204);
  • include any version of the FLSA’s regulation extending the professional exemption to employees with a primary duty of teaching at an educational establishment (29 C.F.R. § 541.303);
  • include any version of the FLSA’s regulation exempting teachers, physicians and lawyers from the salary requirements (29 C.F.R. §§ 541.303(d) & .304(d));
  • include any version of the FLSA’s regulation exempting computer professionals who are paid on an hourly basis (29 C.F.R. § 541.400);
  • align the outside sales exemption under the PMWA with its federal counterpart (29 C.F.R. § 541.500);
  • adopt the streamlined test for the EAP exemptions applicable to “highly compensated” employees (29 C.F.R. § 541.601);
  • provide guidance regarding what it means to be paid on a “salary or fee basis”—including whether deductions from an exempt employee’s salary are authorized to the same extent they are permitted under the FLSA (29 C.F.R. § 541.602 - .606); and
  • include several of the definitions set forth in the FLSA regulations, including:
    • the definitions of “department or subdivision,” “two or more other employees,” or “particular weight”—all of which are relevant for the interpretation and application of the executive exemption (29 C.F.R. §§ 541.103-105);
    • the definitions of “directly related to management or general business operations,” “discretion and independent judgment”—all of which are relevant for the interpretation and application of the administrative exemption (29 C.F.R. §§ 541.201-202); and
    • the definitions of “primary duty,” “customarily and regularly,” “directly and closely related” or any of the other provisions of 29 C.F.R. Subpart H.

Pennsylvania employers have one year to prepare for a new state salary threshold that significantly exceeds the FLSA standard. Even now, however, the above differences between the PMWA and FLSA regulations mean that potential traps already exist for unwary employers that comply in good faith with the FLSA but fail to ensure that their EAP employees also qualify as exempt under the PMWA.

See Footnotes

1 While the rule does not define the term “nondiscretionary,” it is assumed that DLI will look to federal law for guidance. In Fact Sheet 17U, the Wage and Hour Division of the United States Department of Labor explains that incentive compensation that is announced to employees in advance—e.g., production bonuses and commission payments based on a fixed formula—qualify as nondiscretionary payments. A discretionary bonus, in contrast, is one in which the employer retains discretion both as to the fact of payment and as to the amount until a time quite close to the end of the period for which the bonus is paid (such as a surprise holiday bonus).

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.