UPDATE #1: On November 21, 2019, the Pennsylvania Department of Labor & Industry withdrew its final regulation to substantially increase the salary threshold to qualify as an exempt Executive, Administrative and Professional (EAP) employee under the Pennsylvania Minimum Wage Act (PMWA). The Independent Regulatory Review Commission (IRRC) had been scheduled to vote on the regulation at its public meeting at 10:00 a.m. on November 21, but it removed the regulation from its agenda moments before the meeting began.

UPDATE #2: On December 9, 2019, the Department resubmitted its final-form regulation for consideration by IRRC at its January 30, 2020 meeting. The Department explained that it previously withdrew the rulemaking because of pending legislation that would have invalidated the increase to the salary threshold. While the Pennsylvania Senate passed the legislation, the House of Representatives has not yet scheduled a vote.

UPDATE #3: On January 31, 2020, IRRC approved the regulation on a 3-2 vote. The regulation will now be submitted to the Attorney General for legal review. If approved, it will be submitted for publication in the Pennsylvania Bulletin. The first salary increase (which would align the Pennsylvania salary threshold with the FLSA salary threshold that took effect on January 1, 2020) would take effect on the date of publication; the second increase would take effect one year later; and the third increase would take effect one year later. In the meantime, the General Assembly may vote to pass a concurrent resolution asking to halt implementation of the regulation. If passed, the resolution would become subject to approval or veto by Governor Wolf (and if vetoed, subject to an override vote).

In June 2018 the Pennsylvania Department of Labor and Industry (DLI) issued a proposed rule to substantially increase the salary threshold to qualify as an exempt Executive, Administrative and Professional (EAP) employee under the Pennsylvania Minimum Wage Act (PMWA), and invited public comment. On October 17, 2019, DLI submitted its final regulation to the state’s Independent Regulatory Review Commission (IRRC) and legislative oversight committees. IRRC will hold a public meeting on November 21, 2019 to decide whether to approve the final regulation.  If it is approved, the final regulation would increase the EAP salary threshold under Pennsylvania law to:

• $684 per week ($35,568 annually) effective January 1, 2020;
• $780 per week ($40,560 annually) effective January 1, 2021; and
• $875 per week ($45,500 annually) effective January 1, 2022.

The first increase would align the PMWA’s salary threshold with the new FLSA salary threshold that also takes effect January 1, 2020. Beginning in 2021, however, the PMWA’s salary threshold will significantly eclipse the FLSA standard.

Effective January 1, 2023 (and each third year thereafter), the salary threshold would reset automatically to an amount equal to the 10th percentile of all Pennsylvania workers who work in salaried exempt EAP jobs. In other words, every three years, those workers whose salaries are among the lowest 10% of all salaried exempt EAP workers in Pennsylvania will need to have their salary adjusted to a new threshold in order to maintain their exempt status.

Of note, the final regulation does not provide any exception for small businesses or nonprofit organizations.

Like its FLSA counterpart, the final regulation permits employers to satisfy up to 10% of the salary amount by the payment of nondiscretionary bonuses, incentives and commissions that are paid annually or more frequently. 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 makes modest revisions to the duties tests designed to more closely align the PMWA with the FLSA. 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).

However, the final regulation continues to differ 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 of 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.

While DLI expressed an intent to “align” the PMWA more closely with federal regulations, the final regulation announced on October 17 falls far short of achieving that goal. DLI stated, however, that it would “look to federal law for guidance for interpreting its regulations.”

Next Steps: IRRC will hold a public meeting on November 21, 2019 to decide whether to approve the final regulation. Interested members of the public are invited to appear at the public meeting and make comments.