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Matthew A. McKinney

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Changes to overtime calculation rules in Pennsylvania mean employers could be underpaying some salaried, nonexempt employees

Matthew McKinney, Esq., mmckinney@tuckerlaw.com, (412) 594-5605

It is not uncommon for employers to focus their compliance efforts on federal laws like the Fair Labor Standards Act (FLSA), the Americans with Disabilities Act (ADA), or Title VII of the Civil Rights Act, but it is important for employers to remember that Pennsylvania has its own state-specific employment laws that, in an increasing number of instances, provide more robust legal protections for employees than their federal counterparts. That is important because, in such instances, local employers must apply the law that is more beneficial to their employees.

One area in particular where Pennsylvania has strayed farther and farther from the federal rules is wage and hour law, where the Commonwealth’s statute–the Pennsylvania Minimum Wage Act (PMWA)–has been interpreted in some instances to require higher pay for employees than the FLSA does.

Case in point:  Just last year, the Pennsylvania Supreme Court in Heimbach, et al. v. Amazon.com, et al, determined Amazon must pay its Pennsylvania workers for time spent waiting for and going through mandatory screenings after their shifts, even though a federal court had just ruled that the time spent going through the same screenings was not compensable under federal law.  The court ruled that the PMWA imposed stricter requirements than the FLSA, so Amazon’s Pennsylvania employees were entitled to be paid for the time they spent in the screening process, while employees in other states were not.

Along similar lines, last summer the Pennsylvania Dept. of Labor and Industry amended the PMWA’s regulations to change the way overtime has to be calculated for salaried, non-exempt workers. (Side note: Just because employees are paid a salary doesn’t necessarily mean they aren’t also eligible for overtime pay.)

As employers know, overtime pay must generally be calculated at 1.5 times an employee’s “regular rate” of pay.  The latest round of PMWA amendments changed how to calculate that “regular rate” for salaried, non-exempt workers in a way that will, in some instances, lead to higher pay for employees. 

The PMWA now requires that a salaried, non-exempt employee’s regular rate be calculated by dividing all compensation that needs to be included in the regular rate by 40 hours, rather than–as the FLSA’s fluctuating workweek method provides–the total number of hours (straight-time plus overtime) that the employee worked that week. The resulting regular rate is then multiplied by 1.5 and then multiplied by the number of overtime hours to determine the amount of overtime pay due.

In simpler terms, Pennsylvania changed the denominator in the regular rate equation, requiring employers to divide weekly pay by 40 rather than by all hours the employee worked that week.  And, in so doing, the PMWA now requires employers to give higher overtime pay to their employees.  A simple example will illustrate how.

Assume an employee makes a salary of $1,000 per week.  Her hours fluctuate weekly, but her salary remains steady.  This week, she works 50 hours.  Under the new PMWA regulations, that employee is owed $375 in overtime pay, compared to the $100 she would be entitled to under the FLSA’s fluctuating workweek method.

PMWA Formula FLSA Formula
Weekly pay ÷ 40 hours = Regular Rate × 1.5 × OT hours = Total Overtime Owed Weekly pay ÷ 50 hours = Regular Rate × 0.5 × OT hours = Total Overtime Owed
[$1,000 ÷ 40 hours] × 1.5 × 10 OT Hours = Total Overtime Owed [$1,000 ÷ 50 hours] × 0.5 × 10 OT Hours = Total Overtime Owed
$375 in overtime pay due under the PMWA $100 in overtime pay due under the FLSA

Because employers must follow the law that provides the most benefit to the employee, here that means following the PMWA. Employers who are not doing so could be unintentionally shorting their employees on overtime pay and potentially opening themselves up to wage and hour liability. As such, employers with non-exempt, salaried employees working in the Commonwealth should carefully review their payroll practices to ensure compliance with the new rules.

January 31, 2023

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